Europe midday: Shares reverse as rate hike fears temper EZ PMI data
European shares slipped into the red on Tuesday as a stabilisation in eurozone business activity was tempered by a warning that further interest rate rises to combat inflation could tip the single currency bloc into recession.
The pan-regional Stoxx 600 index was down 0.10% at 1135 GMT with all bourses lower. Britain’s FTSE 100 fell on the back of higher public borrowing data driven by the cost of help with energy bills and soaring debt costs.
Business activity in the single currency bloc steadied at the start of 2023 thanks to lower energy prices and optimism around China's reopening, the results of two closely followed surveys revealed. However, there were still storm clouds on the horizon.
S&P Global's composite output index for euro area manufacturing and services jumped from 49.3 points in December to a better-than-expected seven-month high of 50.2 in January vs a consensus 49.9.
An upturn in selling prices may lead the hawks at the European Central Bank to argue that monetary policy needed to be tightened further, said S&P chief economist Chris Williamson, adding that an upturn in hiring and signs of higher wages would also raise alarms, meaning a renewed slide into contraction as interest rates rose could not be ruled out.
Continental stocks have made gains, despite expectations of more rate rises from the European Central Bank amid contrasting views by policymakers on the way ahead.
In Germany, consumer sentiment is set to improve for a fourth consecutive month in February as energy prices fall, according to a GfK institute survey.
In commodities, Brent crude oil traded lower to $87.96.
“Lower energy prices are helping consumer confidence rebound, with the latest snapshot of sentiment in Germany showing the highest reading since August. It’s another positive sign for companies fearing the effects of well-flagged interest rate rises, indicating that consumers are showing resilience, but they are still likely to stay cautious,” said Hargreaves Lansdown analyst Susannah Streeter.
“A retreat in gas prices, with the cold snap expected to end soon, is another welcome sign for companies and consumers. However crude prices are still hovering around the highest levels in seven weeks amid higher demand for oil in China.”
In equity news, shares in Norwegian salmon farmers SalMar and Mowi both made large gains on reports the government was thinking of changes to its planned 40% resource tax on the industry.
Logitech International gained after the computer peripherals maker said its third-quarter sales fell 22%, confirming preliminary results.
Swatch Group was higher as the watchmaker said it was positive about a recovery in its China market while reporting a rise in 2022 sales.
Reporting by Frank Prenesti for Sharecast.com