Losses in European markets, with ‘weight’ inflation

European markets, with the exception of the London Stock Exchange, closed lower in the last session of the week, with investors’ buying sentiment now being hit mainly by rising inflation to new record levels in December and weaker-than-expected US labor market data. .

In particular, inflation in the eurozone climbed to a new record at 5.0% in December from 4.9% in November and -0.3% in December 2020, based on the initial estimate of the European Statistical Office.

Eurostat expects energy to have the highest annual rate again in December (26.0% compared to 27.5% in November). Structural inflation excluding energy and food is estimated to have remained unchanged at 2.6%.

Although the European Central Bank recognizes the sharp rise in inflation in recent months, mainly due to the spike in energy prices, the central bank continues to expect that it will decline within the next year. At the last monetary policy meeting in mid-December, ECB President Christine Lagarde reiterated that, according to bank analysts, inflation will be below the 2% target over the forecast horizon.

The price rally, however, raises questions about the ECB’s policy and is expected to intensify pressure on the central bank to take action to curb inflation.

Investment “appetite” has meanwhile been dampened by new data on the German economy, which showed that Europe’s “locomotive” trade surplus fell to its lowest level since November 2011, according to Reuters, while industrial production decreased by 0.2% on a monthly basis.

“Supply chain frictions are putting pressure on German industry. Only exports leave some hope. However, without production, export recovery will also be short-lived,” said Carsten Brzeski, global macro leader at ING.

In particular, exports increased by 1.7% on a seasonally adjusted basis, while imports fell 3.3%, according to the country’s statistical office.

At the same time, investors were worried about the data on new jobs in the US, which were below expectations, at a time when Federal Reserve officials are ready not only to raise interest rates but also to reduce bond markets, but also to discuss the US Federal Reserve cut its balance sheet, news that triggered a sell off in many markets around the world.

On the board, the pan-European Stoxx 600 index closed with losses of 0.39% at 486.24 points, small losses of 0.25% at 486.93 points after falling 1.25% on Thursday, with the travel and leisure sector shows the worst picture with a drop of 1.6%. On the other hand, the raw materials sector showed the best performance today, with gains of 1.9%.

In Frankfurt the DAX index closed with losses of 0.65% at 15,947.74 points, while in Paris the CAC 40 finished 0.42% lower, at 7,219.48 points. The FTSE 100 in London followed the opposite course, strengthening by 0.47% and closing at 7,485.28 points.

A downward picture in the European region, where in Milan the FTSE MIB failed to remain on positive ground and closed 0.13% lower at 27,618.47 points, while the Spanish IBEX 35 closed with losses of 0.43% at 8,751.80 points.

For the rest of the day, retail sales exceeded expectations in November, indicating that consumer demand remained strong, despite new restrictions due to the pandemic.

In particular, retail sales rose 1% in November, according to Eurostat, shattering expectations of a 0.5% drop in a Reuters poll. On an annual basis, retail sales expanded by 7.8%, well above forecasts of 5.6%.