European shares fall as stronger-than-expected US inflation hits rate-cut hopes

European shares fell on Thursday as news of stronger-than-anticipated US inflation poured cold water on hopes of early interest rate cuts by major central banks across the world.

The headline consumer price index increased at an annual pace of 3.4 per cent in December, according to the Bureau of Labor Statistics, up from 3.1 per cent in the previous month, and exceeding economists’ expectations of about 3.2 per cent.

The pan-European Stoxx 600 index ended 0.8 per cent lower after rising as much as 0.8 per cent during the day, its third straight day of losses with banks at the forefront of the sell-off.

Dublin

The Iseq All Share index lost 0.7 per cent to 8,410.45, with property stocks among the worst performers, as sector followers fretted that much-hoped-for central bank rate cuts may take longer than expected. Glenveagh Properties lost 3.2 per cent to €1.19, while Cairn Homes dipped 0.9 per cent to €1.32.

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Banks were also out of sorts, as investors focused on the effect of higher-for-longer rates might have on the economy and loans demand. AIB slid 2.9 per cent to €3.83, while Bank of Ireland declined by 2.7 per cent to €8.32.

Ires Reit reversed by 1.8 per cent to €1.12 to hand back recent gains that had been driven by the prospect of the company being sold or broken up against the backdrop of a more favourable rates environment.

Bucking the trend, Ryanair gained 1.8 per cent to finish at €18.40. The carrier’s passengers have not shown any concern about flying on Boeing 737 aircraft since the grounding of some 737 Max jets after a cabin panel blowout on an Alaska Airlines flight, chief executive Michael O’Leary said.

London

The FTSE 100 index fell 1 per cent, hurt by losses on Wall Street after hotter-than-expected inflation data, while shares of Marks & Spencer fell despite better-than-expected holiday season sales.

UK banks such as HSBC, Lloyds Banking Group and Barclays fell between 3.1 per cent and 4.6 per cent, among the top drags on the FTSE 100.

“The US CPI report for December suggests that the last mile in the disinflationary process towards the Fed’s 2 per cent inflation target will be bumpy,” UniCredit analysts noted.

“Overall, the December CPI report is consistent with our view that the Fed will not cut interest rates until June.”

Upmarket store Marks & Spencer reported a better-than-expected 8.1 per cent rise in sales over the Christmas trading period but the stock, which has doubled over the past year, fell 5.2 per cent following its cautious outlook.

Tesco dipped 1.4 per cent even as Britain’s number-one supermarket chain upgraded its profit outlook for the second time in four months.

WPP fell 4 per cent after UBS downgraded the ad group’s stock to sell from buy, citing tepid cash flow levels.

Europe

Rate-sensitive real-estate stocks dropped 1.4 per cent, while utilities and financial services slipped 1.2 per cent and 1.2 per cent, respectively.

Among individual stocks, Rational rose 6.7 per cent after the German industrial kitchen retailer’s preliminary 2023 results beat market expectations.

Carlsberg rose 3 per cent after BofA Global Research upgraded the Danish brewer’s rating to buy from neutral.

New York

Wall Street’s main indexes were lower in early afternoon trading as investors mulled the hotter-than-expected inflation data.

Meanwhile, Microsoft overtook Apple as the world’s most valuable company after the iPhone maker began 2024 with its worst start in years due to concerns over falling demand.

Other megacaps such as Tesla, Meta Platforms and Nvidia were also lower.

Crypto stocks such as Coinbase, Bitfarms and Riot Platforms also reversed early gains. The US securities regulator approved the first US-listed exchange-traded funds (ETF) to track spot bitcoin late on Wednesday.

Citigroup declined after a filing showed the lender booked about $3.8 billion (€3.5 billion) in combined charges and reserves that will erode its fourth-quarter earnings, to be reported on Friday. – Additional reporting: Reuters

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