Europe midday: Strong dollar drags on equities

European stocks dropped in morning trading on Friday, with commodity shares dragged down by the strength of the greenback and investors clambering for the fixed income of bonds.

The pan-European Stoxx 600 was down 1.8% to 335.10, while London’s FTSE 100 lost 1.57%, Germany’s DAX was down 2.11% and France’s CAC 40 was off 1.86%.

None of the index’s sectors were trading in the green, as mining and consumer services took the bulk of the losses.

The Stoxx was facing a 1.2% decline for the week, which would be its second straight weekly loss.

A stronger dollar was crushing oil and gas and mining stocks, with crude prices under pressure.

Brent crude was last down 0.95% at $51.46 per barrel and West Texas Intermediate lost 1.14% at $49.99.

Among the oil peddlers, Tullow Oil lost 3.01%, Repsol was down 2.19% and oilfield services firm SBM Offshore was down 1.83%.

In the miner's’ corner, Boliden lost 2,17% and Glencore was down 2.83% in London.

Investors appeared to be rushing to the safety of bonds as global yields hit record lows and prices continued to rally.

Yields on the 10 year German bond were down at 0.030%, recovering slightly from a new record low of 0.021% earlier in the session.

The European Central Bank began a programme of corporate bond purchasing on Wednesday, though bank bonds were explicitly excluded.

“In the eurozone, investors step out of the equity markets to invest in the corporate bond debt at a visible pace,” said London Capital Group market analyst Ipek Ozkardeskaya in a note.

“The rush into the eurozone corporate bonds will likely cause a similar unhealthy distortion in risk-to-return ratios, as it has been the case when the European Central Bank started buying sovereign debt to boost growth.”

On the economic front, Danish inflation rose marginally in May, with consumer prices up 0.1% on a year-on-year basis.

In Norway, core inflation remained unchanged month-on-month at 0.4% in May, while Italy’s industrial production index rose 0.5% month-on-month for April, beating the 0.3% rise expected by economists.

Earlier, German consumer prices measured in EU-harmonised terms held steady in the country in May on a year-on-year basis, and rose 0.4% over the previous month.

In German national terms, inflation was 0.3% month-on-month and 0.1% higher over the same time last year.

A 7.9% fall in energy prices dragged the figures down, with Destatis reporting that inflation excluding energy was 1.2% on the year.

In France, industrial production recovered at a faster-than-anticipated rate in April, with Insee revealing growth of 1.2% on a monthly basis, against a 0.4% decrease in March and a forecast increase of 0.4%.

It was the first rise in the country for three months, with manufacturing output ahead by 1.3%, from a 1% decrease, though construction output eased to 0.7% from 1.3%.

Finnish industrial production was also released in the morning, with a working-day-adjusted 2.1% year-on-year increase in April showing a bounce back from the 1.8% decline seen in March.

In corporates, pubco Fuller, Smith & Turner was down 4.09% after reporting a rise in profit for the financial year, though it warned of a mixed start to the current year.

Pretax profit for the year to 28 March grew to £39.2m from £36.1m a year ago, with revenue rising to £350.5m from £321.5m.

Recruitment firm SThree lost 7.16%, reporting mixed trading conditions in the six months to 31 May, with group gross profit up 6% year-on-year and ahead by 11% excluding energy.

Its UK market was hampered by Brexit uncertainties and a slowdown in the banking and finance sector, with gross profit there down by 5% on-year, and seriously challenging conditions in energy, with gross profit down 31%.

SAS Scandinavian Airlines was down 10.31% after it managed to avoid a Norwegian pilot strike, by signing a new wage agreement with the trade union Parat.

More than 400 of the firm’s pilots in Norway were due to walk out unless an agreement was found in mandatory mediation, which ended on Thursday.