Europe close: Stocks end off session lows even as investors mull rates outlook

European shares ended the session slightly in the red as investors digested US producer price and jobs data from the day before and hawkish remarks from multiple top Federal Reserve officials that increased expectations of more interest rate hikes this year.

“Equities look to be heading into the weekend on a largely downbeat tone, with recent concerns over slowing US disinflation shifting rate expectations," said IG senior market analyst Josh Mahony.

"While most had seen the Federal Reserve soon ending their tightening phase after a historic surge in rates, the higher-than-expected retail sales, payrolls, and inflation figures provide the basis for yet more monetary tightening from the Fed."

On a more positive note, Mahony pointed out the decline in natural gas futures on Friday to a two-year low, which he believed would eventually pull inflation lower.

The pan-European Stoxx 600 index was down 0.2% at 464.30, alongside a 0.33% dip on the German Dax to 15,482.0.

Spain's Ibex 35 on the other hand managed to eke out a gain of 0.06% to 9,333.0.

Euro/dollar was little changed, edging up 0.03% to 1.0677, reversing an earlier drop to 1.0613.

In parallel, the yield on the benchmark 10-year German Bund gave back early gains to end the day down by four basis points to 2.447%.

US data on Thursday showed monthly producer prices accelerated in January by 6% compared with expectations of a 5.4% increase. Meanwhile the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.

The numbers prompted St Louis Federal Reserve chief James Bullard to say that inflation was still “too high" and that he wouldn’t rule out supporting a 50 basis point rise at the central bank’s next policy meeting.

"Continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low," he said.

In Germany, producer prices rose more than expected in January, though the rate of increase slowed for the fourth consecutive month in a further sign that inflation in Europe's largest economy could be reversing.

Producer prices of industrial products were up 17.8% on the same month last year, the Federal Statistical Office reported, compared with analysts' expectations for the rate of increase to ease to 16.4%.

In equity news, shares in Britain’s NatWest bank slumped despite the lender posting its best annual profit since the industry caused the financial crash of 2008. Profits surged by 33.5% to £5.1bn and an £800m share buyback was also announced.

Iconic German car maker Mercedes-Benz gained 3% after reporting higher 2022 earnings.