Europe midday: Inflation fears send shares lower
European shares opened lower on Wednesday as the rally of recent days ran out of steam amid worries over rising prices fuelling inflation and hindering any post-Covid economic recovery.
The pan-European Stoxx was down 0.41, with all major European bourses in the red. London’s FTSE 100 fell 0.23% as official data showed a slightly higher-than-expected rise in January inflation.
Data released earlier by the Office for National Statistics showed that consumer price inflation rose to 0.7% in January from 0.6% in December, with food and household goods the main drivers. Analysts had been expecting a nudge lower to 0.5%.
US futures indicates a muted opening later in the day as investors eye retail sales readings across the pond with the standard and core numbers expected to improve from December’s downturn, each estimated at 1.1%.
"Over the past few weeks, it’s been notable that bond markets, both in the UK and in the US are starting to price the risk of higher inflation pressures, as long-term yields move to the upside," said CMC Markets analyst Michael Hewson.
"Combined with sharp rises in energy and commodity prices there is rising concern that higher prices will not only choke off any post pandemic recovery, due to higher borrowing costs, but they could also crimp future consumer spending due to higher living costs."
Investors are also keeping a wary eye on commodity prices, where copper and crude oil have made sharp gains, with oil prices up more than a fifth since the start of the year.
"This rise in inflation expectations has for now not been reflected in higher headline CPI numbers, and probably won’t be for several months, however that could well start to change over the next few weeks, while consumers will notice straightaway when they go to fill their cars up when lockdown gets eased," Hewson said.
In equity news shares in luxury goods maker Kering slumped 7.15% after sales at its Gucci brand fell more than expected.
Kering, which also owns the Saint Laurent brand, said revenue for the whole group fell 8.2% in the fourth quarter.
Investment platform Hargreaves Lansdown plunged 6.81 % in response to Tuesday’s post-close announcement that co-founder and ardent Brexiteer Peter Hargreaves had offloaded 18m shares in the company worth around £300m.
Shares in British American Tobacco fell 3.98% as the prospect of mid-single figure earnings growth for 2021 countered a 10% rise in 2020 profit.
The Lucky Strike and Camel maker reported a 10% rise in pre-tax profits to £8.7bn in 2020. On an underlying basis, pre-tax profits lifted 1% to £10.2bn.
On the upside, shares in Swedish cloud computing services provider Sinch soared 13% as the company agreed to buy US communications company Inteliquent for $1.14bn in cash.
Sinch shares have nearly tripled over the past year on the back of the work-from-home trend prompted by the Covid-19 pandemic. The company said it expected the transaction to close in the second half of the year.
Rio Tinto shares were higher after the mining giant delivered a record dividend to shareholders as soaring iron ore prices and demand from China drove full-year profits sharply higher. Miners more generally were on the rise, with Antofagasta, BHP and Anglo American also higher.