Europe open: Low German inflation keeps markets lower

Markets opened straight into the red in Europe on Friday, with low inflation data from Germany raising doubts over the European Central Bank’s ability to lift inflation in the eurozone.

The pan-European Stoxx 600 was down 1.08% at 337.55 in early trading, while London’s FTSE 100 lost 1.19% at 6,157.94, Germany’s DAX was down 1.48% 9,939.57, and France’s CAC 40 was off 1.01% at 4,360.94.

A raft of economic indicators were due out during the morning, with German inflation disappointing first as low readings raised questions over the ECB’s goal to boost inflation in the euro currency bloc.

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.

But experts said the cost of housing could drive inflation up in Germany, with Pantheon Macroeconomics chief eurozone economist Claus Vistesen saying “net rent inflation could be one of the key components pushing German inflation higher in the short term - the rate has declined sharply, and is due a rebound soon.

“The caps on rents in big cities introduced last year likely will wash out of the year-over-year rate in the next three-to-six months, and we expect net rents to rise.”

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%.

“These are strong data, but we worry about a relapse in May,” Pantheon analysts said.

“Blockades of all France’s main oil refiners likely will mean that production of refined petroleum products will take a hit, and other sectors could be constrained by the conflicts too.”

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.

Output grew mostly in mining and quarrying at 14.5%, with manufacturing up 1.9% and the chemicals sector posting 6.6% growth.

Crude prices were still falling in early European trading, having hit their 2016 peak of $51.67 earlier this week.

Brent crude was last down 1.11% at $51.38 per barrel, and West Texas Intermediate fell below the $50 mark, losing 1.2% at $49.96.

On the corporate front, pubco Fuller, Smith & Turner was trading choppily 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 7.98% reported 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 12.11% 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.

Airport security guards also received a new wage package, though the airline wasn’t quite out of the woods, as it continued negotiating with its Swedish pilots.

Still to come on the economic front was consumer inflation from Denmark and Norway, and Italian industrial production.