Europe midday: German CPI, rate fears, send shares into the red

The pan-European Stoxx 600 index was down 0.22% in early deals, with all major bourses trading lower. Investor worries over more rate rises have heightened as declines in inflation in the US and Europe are slower than traders hoped for, meaning any cuts are off the agenda for the short term at least.

"The spectre of interest rate rises which may have further to run has stalled progress over the last few trading sessions, and the latest economic news from the US in particular has strengthened the possibility," said Richard Hunter, head of markets at Interactive Investor.

"Lower than expected jobless claims suggest that the labour market remains resilient despite the rate hikes so far. In addition, a further rise in labour costs and a recent spike in energy prices are increasing the difficulties of getting the inflation genie back into the bottle."

"As such, the Federal Reserve may consider that it has leeway to raise rates once more towards the end of the year. Its insistence that it will remain data dependent, when the data coming through is strong, has left investors who were hoping for imminent rate cuts high and dry."

In economic news, German inflation eased to 6.1% in August - confirming initial readings - as elevated food and energy prices continued to outstrip the overall rate, according to official data released on Friday.

The reading compared with July's 6.1%. On a harmonised basis CPI rose 6.4% year on year, also confirming the provisional result.

Core inflation, which strips out volatile food and energy prices, was unchanged at 5.5%, demonstrating that inflation also remained high in other product groups.

“Increases in energy and food prices exceed overall inflation and keep the inflation rate high. The base effect stemming from last year’s €9 travel ticket was also apparent in August, when it drove inflation up and reduced the dampening effect of the Germany ticket on prices. This base effect will cease to apply from the next month onwards.”

Energy product prices in August were 8.3% higher than in the same month a year earlier, following a 5.7% increase in July 2023. Electricity, in particular, cost substantially more, rising 16.6% annually.

Food prices rose 9%, slowing from 11% in July, although increases in many food groups remained "markedly higher than overall inflation".

In France, industrial output rebounded more than expected in July, climbing 0.8% on a monthly basis compared with expectations of a 0.1% rise, after a sharp 0.9% fall in the prior month.

Spanish industrial Production in Spain decreased 1.80% in July, after an upwardly revised 3.2% slump in June and compared with market forecasts of a 2% drop.

It marks the fourth consecutive month of declines in industrial activity, as output continued to fall for energy, down 10.8% vs 9.8% in June, durable consumer goods (-7.3% vs -5.7%) and intermediate goods (-2.6% vs -4.5%).

In equity markets, shares in JD Sports jumped after Berenberg lifted its price target on the sports fashion retailer to 225p from 210p and said investors still underappreciate the strength of the company’s model, its positioning and the international opportunity.

Reporting by Frank Prenesti for Sharecast.com