Europe close: Inflation worries, hawkish central banks drag stocks lower

Stocks across the Continent ended the month of August on a down note following a wobble on Wall Street after the release of a weaker-than-expected report on the state of the jobs market in the US.

Adding to the selling pressure was a higher-than-expected reading for euro area consumer prices published earlier.

Josh Mahony, senior market analyst at IG, told clients that: "Inflation pressures continue to dampen market sentiment, with eurozone inflation hitting a record high for the ninth consecutive month.

"Comments from ECB member Holzmann essentially guaranteed a minimum 50Bp rate hike next week, with 75Bps also being debated. Unfortunately, there looks to be little reason for optimism going forward, with the ECB, Fed, and BoE all faced with the prospect of ramping up interest rates in the midst of a recession and cost of living crisis."

The pan-European Stoxx 600 fell 1.12% or 4.69 points to 415.12, alongside a 0.97% decline for the German Dax to 12,834.96.

Dutch TTF natural gas futures reversed course to trade down by 26.2% to €239.11/MWh.

The decline in futures was despite Gazprom taking the Norsdtream 1 gas pipeline offline for three days of scheduled maintenance on Wednesday.

Traders were also eyeing a meeting an emergency meeting of the European Union's energy ministers scheduled for 8 September were measures to rein in energy prices - at least in the near-term - might be decided upon.

Euro/dollar meanwhile was 0.6% higher to 1.0060, buoyed by the soft ADP reading.

Back in the euro area, the annual rate of increase in headline consumer prices accelerated from 8.9% in July to 9.1% for August (consensus: 9.0%).

But the real news was a pick up in core CPI from 4.0% to 4.3% (consensus: 4.0%), on the back of rising prices for non-energy industrial goods and services.

In other economic news, Germany's rate of unemployment was reported at up to 5.5% in the month of August, versus 5.4% in July, alongside a 28,000 rise in jobless claims, as expected.

"Overall, we see core inflation ending the year fractionally under 4%, which will keep the ECB’s feet to the fire," Pantheon Macroeconomics's chief economists, Claus Vistesen, said in the wake of the report.

"We now think the central bank will raise its deposit and refinancing rates by 50bp in October and December, respectively."

According to analyst at Saxo Bank, markets were pricing in 65 basis points of interest rate hikes by the European Central Bank at its 8 September policy meeting.

Household consumption in France fell at a 0.8% month-on-month pace in July when services are excluded (consensus: -0.3%).