Europe midday: Stocks flat as Spanish, French inflation rise

European stocks had pared earlier losses to trade flat by midday on Tuesday as the latest French and Spanish inflation data raised expectations of further rate hikes from the European Central Bank.

The benchmark Stoxx Europe 600 index was steady at 462.54, while France’s CAC 40 and Germany’s DAX were also flat.

Investors were still scrutinising the latest version of the UK-European Union trade deal covering Northern Ireland.

UK Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen on Monday unveiled a deal on post-Brexit trade arrangements for Northern Ireland - a source of huge tension over the only British territory that has a land border with the 27-nation bloc.

Closer to home, preliminary figures out earlier showed that French and Spanish inflation rose in February, putting more pressure on the ECB to hike rates.

Headline inflation in France ticked up to 6.2% year-over-year from 6% in January, coming in above consensus expectations of 6.1%. Meanwhile, the harmonised index came in at 7.2% in February, up from 7% the month before and above consensus expectations for no change. The jump mostly reflects higher food and services inflation.

ING economist Charlotte de Montpellier said the data indicate that French inflation has still not peaked.

"Both headline and core inflation are likely to continue to rise in the coming months, giving the ECB further reason to continue raising rates beyond the first quarter," she said.

"Despite a favourable base effect for petroleum products, it will probably take until the second quarter to see the peak in inflation in France and until the summer to see inflation really come down. Average inflation in 2023 will therefore probably be higher than in 2022. We expect 5.5% for the year, and 6.3% for the harmonised index, against 5.2% and 5.9% respectively in 2022."

In Spain, the headline inflation rate rose to 6.1% from 5.9% in January, with harmonised inflation coming in the same. Economists had been expecting a decline to 5.5%.

ING’s Wouter Thierie said: "Although the pace and magnitude of the decline in inflation remain highly uncertain and depend on highly volatile energy prices, we expect Spanish inflation to be around 4.3% for the full year 2023, reaching 2.7% by the end of the year.

"It will probably take until the second half of 2024 for headline inflation to return to the ECB's 2% target."

In equity markets, Germany’s Bayer slumped after warning that profits will be lower this year.

Elsewhere, online supermarket Ocado slid as annual losses widened due to a profit wipeout at its retail unit, run jointly with Marks & Spencer.

Building materials supplier Travis Perkins fell as a tough housing market sent profits lower.