Europe midday: Stocks flat as morning optimism fades

by | Feb 7, 2022

European gave up morning gains in the week’s first session to trade flat as investors continued to look for interest rate moves from central banks.

The pan-European Stoxx 600 was down 0.1% with all regional bourses mixed. Last week, the European Central Bank kept interest rates unchanged despite record inflation levels across the euro zone, while the Bank of England lifted rates for the second time in two months – the back-to-back rises since 2004.

Despite the unchanged policy stance, the ECB signalled a possible policy “recalibration” in March.

“The shift in inflation risks to the upside prompted ECB Governing Council member Klaas Knot to comment at the weekend he expected the first interest rate rise from the ECB as early as October,” said CMC Markets analyst Michael Hewson.

“While he is acknowledged as one of the more hawkish members of the governing council, inflation in the Netherlands is still well above the EU headline rate of 5.1% at 7.6%, he is still the first governing council member to break ranks and deviate to a much more hawkish stance.”

Investors will be looking for more clues on Monday when ECB President Christine Lagarde appears before the European Parliament’s Economic and Monetary Affairs Committee.

In the UK, data from mortgage lender Halifax showed British house prices were expected to slow “considerably” over the next 12 months as households face a cost-of-living squeeze.

“There are plenty of reasons for investors to be cautious. Strong US jobs data last week might suggest the Fed pushes up rates faster and harder than currently expected. Ongoing tensions between Ukraine and Moscow also hang over markets like clouds waiting to unleash a fury of rain,” said AJ Bell investment director Russ Mould.

“The reaction to corporate earnings in the US has been somewhat volatile with extreme movements either up or down. Labour cost pressures remain a worry, and inflationary pressures are certainly darkening the outlook for both consumer and business spending.

“On the UK market, miners were in demand as an ongoing inflationary environment should be positive for metal prices.”

Meanwhile in Germany, industrial production dipped in December, according to official data, as supply chain bottlenecks and a fall in construction hampered Europe’s largest economy at the end of last year.

The Federal Statistics Office said the country’s industrial output fell by 0.3% on the month after an upwardly revised increase of 0.3% in November.

In equity news, shares in French automotive group Faurecia gained as the company said it was targeting sales of more than €33bn in 2025, at an operating profit margin of more than 8.5%.

Flutter Entertainment rose following reports over the weekend that it was launching a last-minute bid for the operating licence of the UK’s National Lottery.

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