Europe midday: Shares dip after hawkish ECB comments, weak EZ data

The pan-European Stoxx 600 index was up 0.22% with little corporate news to drive sentiment.

European Central Bank chief economist Philip Lane said on the bank will likely need to increase borrowing costs further after next week’s planned hike.

"The current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting, while the exact calibration beyond March should reflect the information contained in the upcoming macroeconomic projections, together with the incoming data on inflation and the operation of the monetary transmission mechanism," he told an audience in Dublin.

The ECB has already signalled that it will lift rates by 0.5% at its meeting on 16 March.

Elsewhere, investor sentiment in the eurozone unexpectedly deteriorated in March, according to the Sentix index for the bloc, which fell to -11.1 from -8.0 in February, coming in below consensus expectations of -6.3.

The current situation index rose to -9.3 in March from -10.0 the month before, while the expectations gauge declined to -13.0 from -6.0.

To darken the mood further, eurozone retail sales increased at a slower than expected clip in January, with household budgets continuing to be strained by both high inflation and rising interest rates.

According to Eurostat, retail sales rose 0.3% in January - below the 0.5% increase forecast by economists. On an annual basis, retail sales were down 2.3%.

The rise, which did little to reverse the 1.7% fall seen in December, was driven by food, drinks and tobacco, which combined for a 1.8% month-on-month increase in January.

Earlier in the day, optimism from a Wall Street rally late on Friday was tempered when China set its economic growth target at around 5% at its National People's Congress, towards the lower end of expectations. The news hit miners, for whom Beijing is a major customer, with Anglo American, Antofagasta, Rio Tinto and Glencore all lower.

‘’Financial markets are set for some choppy trade early this week as investors search for a fresh sense of direction, after Friday’s Wall Street exuberance collides with disappointment over China’s growth ambitions,” said Hargreaves Lansdown analyst Susannah Streeter.

“It’s clear that a return to stability is Beijing’s main aim, rather than big expansionary plans, after the painful past few years. The 5% target for growth announced was not as high as had been hoped, particularly given the recent resurgence in factory activity and business confidence, indicating there is reticence towards signing off any blockbuster stimulus plans any time soon.”

“This will nudge down hopes that China could provide the extra steam to offset declines in other major economies, prompted by efforts to rein in rampant inflation. The exception appears to be for defence which will see budgets increased by more than 7%, but rather than being encouraging this development will be tinged with worries about heightened geopolitical risk.”

Investors will also be eying US payroll data on Friday after February’s blowout number sparked fears that the Federal Reserve might raise interest rates for longer.

Fed Chief Jerome Powell also holds his two-day testimony before Congress on Tuesday and Wednesday.

In equity news, Credit Suisse shares fell after Harris Associates, one of the Swiss bank's major shareholders, announced it had sold its stake over the past few months.

B&Q owner Kingfisher and Tesco rallied after an upgrade to ‘buy’ from ‘hold’ at Jefferies, while B&M European Value Retail was higher after an upgrade to ‘outperform’ from ‘sector perform’ at RBC Capital Markets.

Shipping services company Clarkson gained after it reported a sharp rise in annual earnings, driven by a strong performance in its broking division. Pre-tax profit for the 2022 calendar year came in at £100.1m, compared with £69.1m a year earlier. The total dividend was lifted to 93p a share from 84p.

Reporting by Frank Prenesti for Sharecast.com