Europe midday: Stocks stay down after PMIs, German ZEW

European shares were still in the red by midday on Tuesday as upbeat data reignited worries about rate hikes, and amid geopolitical tensions.

The pan-European Stoxx 600 index was flat, but France’s CAC 40 was off 0.3% and Germany’s DAX was 0.4% lower.

A survey out earlier showed that business growth in the eurozone hit a nine-month high in February.

The S&P Global flash eurozone PMI composite output index rose to 52.3 from 50.3 in January, rising for the fourth month in a row and indicating the strongest expansion since last May. Economists had been expecting a reading of 50.6.

A reading above 50.0 signals expansion, while a reading below indicates contraction.

The flash eurozone services PMI activity index printed at 53.0 in February, up from January’s reading of 50.8 and hitting an eight-month high. However, the manufacturing PMI dipped to 48.5 from 48.8.

Capital Economics said: "February’s chunky rise in the euro-zone Composite PMI suggests that the economy will grow in Q1. With the labour market still very tight and price pressures strong, the survey will reinforce ECB policymakers’ conviction that their tightening cycle still has some way to go."

Market participants were also mulling the latest survey from the ZEW Center for European Economic Research in Mannheim, which showed that German business sentiment improved in February.

The headline ZEW investor expectations index rose to 28.1 from 16.9 in January, coming in ahead of expectations for a reading of 22.0.

The current conditions index improved to -45.1 in February from -58.6 the month before, ahead of expectations of -50.5.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "EZ investor sentiment data are still turning up, consistent with continued low gas prices, and rising equity prices.

"These data are not always reliable indicators for conditions in the wider economy, but they are now pointing to a pick-up in economic activity and economic sentiment, primarily evidenced by the split between rising expectations and a still-depressed current conditions index. This is often an early indicator for better things to come in the EZ economy.

"On this occasion, however, it is also likely an indication that risks for ECB rate hikes are tilted to the upside, despite the consensus expectations of 75-to-100bp further hikes between now and June."

Investors were also eyeing developments in Ukraine ahead of a speech by Russian President Vladimir Putin as he sets aims for the second year of the illegal invasion of his neighbour, while US President, who made a surprise visit to Ukraine on Monday, was set to hold talks with Polish leaders on Tuesday and deliver a speech.

Tensions are rising in the region as China hinted that it could supply weapons to Moscow, sparking a warning of retaliation from the US administration.

In equity news, Credit Suisse slumped following a report the Swiss financial regulator is reviewing remarks made by the bank’s chairman Axel Lehmann about outflows from the lender having stabilised in early December.

Global hotel chain operator IHG lost ground despite posting a rise in annual profits aided by higher room prices and announcing a $750m share buyback as travel continued to rebound from the Covid pandemic.

Smith & Nephew gained despite a fall in annual profits, while HSBC reversed earlier losses to trade up as it said quarterly profit surged 92% on rising global interest rates, but the bank was cautious on its outlook.

French energy company Engie rose after reporting a sharp increase in 2022 profits driven by higher gas and power prices.