European shares fell on Friday, tracking a sell-off in global markets after red-hot U.S. inflation data fuelled bets on a more aggressive Federal Reserve rate hike, though dovish comments from the European Central Bank chief stemmed some losses.
The pan-European STOXX 600 dropped 1.0% after data showed U.S. consumer prices saw the biggest rise in 40 years in January, and St. Louis Federal Reserve Bank President James Bullard said the print had made him “dramatically” more hawkish.
The inflation print of 7.5% raised bets on a 50 basis-point rate hike from the Fed, as the sell-off spilled over into euro zone bonds, with Germany’s 10-year yield rising 7 bps to the highest since 2018.
“Strong quarterly earnings in Europe could dampen the sell-off, but until fears about a more aggressive response from the FOMC dissipate, markets will remain under pressure,” said Stuart Cole, head macro economist at Equiti Capital.
All subsectors and regions of the STOXX 600 were in negative territory, but rate-sensitive tech stocks were the biggest decliners, plunging 1.8%.
However, “the Fed will do everything it can to avoid spooking the market… akin to what we saw last month, and that means treading carefully,” Cole added.
For the ECB, raising the main interest rate now would not bring down record-high euro zone inflation and only hurt the economy, ECB President Christine Lagarde said in an interview.
The STOXX 600 is set to log its first weekly gain in 2022 on positive earnings and hopes that the ECB may not shift its accommodative stance this year, although price pressures, worrying economic data, and central bank officials’ comments raise fears that the banks may need to act aggressively to curb inflation.
Meanwhile, Germany’s Chambers of Industry and Commerce Friday cut its 2022 growth forecast for Europe’s biggest economy to 3.0% from the 3.6% it had predicted in October due to rising energy prices, raw material shortages and the lack of skilled workers.
Among stocks, carmaker Volvo Cars slipped 3.5%after posting earnings below expectations, pressured by global supply shortages.
State-controlled French power company EDF slipped 4.4% after cutting its estimate for its French nuclear output in 2023 from 340 “370 TWh to 300-330 TWh.
In a few bright spots, Mercedes-Benz Cars and Vans advanced 2.4% after saying it expects an adjusted return on sales of 12.7% in 2021.
French TV group TF1 climbed 1.0% after announcing a 14.2% rise in full-year advertising revenue, citing a robust recovery in advertising spend.