Europe close: Stocks hit by hot US inflation data

European shares fell into the red on Friday as hotter-than-expected readings on US inflation stoked a risk-off environment.

Investor sentiment had already been on the soft side going into the latest US data dump due to figures showing a fall in German GDP, while strong results from airline group IAG also failed to impress investors.

“US inflation looks to be a problem that will not be going away anytime soon according to the latest data released this afternoon," said IG chief market analyst Chris Beauchamp.

"With the core PCE price index widely heralded as the Fed’s favoured inflation gauge, today’s rise of 0.6% for the month of January has sparked a surge in pricing for a 50-basis point hike at next month’s meeting.

"Perhaps more worrying than a slightly higher terminal rate is the sticky nature of inflation, with yesterday’s pricing for a first rate cut in December 2023 now delayed into 2024.

The pan-regional STOXX 600 was down 1.04% at 467.70 with Germany's Dax off by 1.72% alongside to 15,209.74, although Spain's Ibex 35 was down by just 0.33% to 9,201.50.

Euro/dollar meanwhile slipped 0.42% to 1.0552 and the yield on the benchmark 10-year German Bund was up by six basis points to 2.544%.

The German economy contracted more strongly than expected in the final quarter of 2022, as inflation and the energy crisis hit household consumption and capital investment.

The economy shrank by 0.4% in compared with the previous three months, the statistics office said. Preliminary data from the office had pointed to a 0.2% quarter-on-quarter contraction adjusted for price and calendar effects. In the third quarter of 2022, gross domestic product saw slight growth of 0.5% compared to the three months prior.

Meanwhile UK consumer confidence rebounded from historic lows in February, according to a survey released by GfK on Friday.

The long-running consumer confidence index rose seven points to -38, with all five confidence measures up, but GfK said the measure remains "severely depressed". Analysts were expecting a reading of -43.

In equity news German chemicals giant BASF fell 8% on news it plans to cut plans to cut 2,600 jobs and halt buybacks as it warned of a further decline in earnings.

British Airways owner IAG flew lower despite a return to profit in 2022 as international air travel continued to recover from the Covid pandemic.