Europe midday: Stocks back in the red as rebound proves short-lived

European markets failed to hold on to early gains as the initial rebound in stocks gave way to more selling on Tuesday.

At midday, the benchmark Stoxx Europe 600 index was down 0.5%, while Germany’s DAX and France’s CAC 40 were both down 0.7%.

Indices were back in the red following a short-lived bounce in the morning, having fallen heavily in the previous session in line with Asian markets.

In Asia, meanwhile, the situation remained volatile. The Shanghai Composite ended a choppy session slightly lower after the People’s Bank of China pumped 130 billion yuan into the financial system as it attempted to calm markets following Monday’s rout.

In Europe, signs of stagnating inflation did little to lift the mood.

Data from Eurostat showed Eurozone consumer prices rose 0.2% year-on-year compared with expectations for a 0.3% increase and unchanged from November, piling pressure on the European Central Bank to do more to bring inflation back to target.

Core CPI, meanwhile, was steady at 0.9% in December.

“The soft inflation print increases the pressure on the ECB next week, and also increases the risk of additional easing,” said Pantheon Macroeconomics.

“But we think the central bank will refrain from adding stimulus, opting to wait for a bit more data in Q1 before potentially acting. Another disappointment in the January inflation data likely would see the central bank adding to its stimulus.”

Elsewhere, figures from the Federal Labor Agency revealed that unemployment in Germany fell a seasonally-adjusted 14,000 last month, which was far better than the 8,000 drop economists had pencilled in.

The unemployment rate was unchanged at 6.3%, in line with consensus and at its lowest since German reunification.

On the corporate front, FTSE 100 clothing retailer Next slid after its Christmas sales disappointed.

Beleaguered German car maker Volkswagen skidded after the US Justice Department sued the company over the installation of emissions-cheating devices.

On the upside, navigation software maker TomTom gained ground after saying BMW chose its traffic information in Russia, New Zealand and Australia.

Dialog Semiconductor was higher following a media report that Microchip Technology is planning to submit a bid for Atmel Corp by early next week, challenging Atmel’s planned merger with Dialog Semiconductor.

France’s Bouygues and Orange were both on the front foot after confirming preliminary discussions over a possible tie-up.

In London, Tesco rallied after Deutsche Bank upgraded the stock to ‘buy’ from ‘hold’.

In commodity markets, oil prices slipped as concerns over a global supply glut outweighed Middle East tensions, with West Texas Intermediate down 0.1% to $36.71 a barrel and Brent crude down 0.2% to $37.13.