European stocks on track for weekly gain after days of choppy trading

European stocks rose after days of choppy trading driven by the war in Ukraine and investors bracing for tighter monetary policy from central banks.

The Stoxx 600 index, which is on track for a weekly gain but remains almost 12 per cent lower for the year so far, added 0.6 per cent as energy stocks rose to reflect expectations of oil prices remaining high. Germany’s Xetra Dax added 1.1 per cent, though it remained more than 14 per cent lower for the year.

London’s FTSE 100, which has outperformed other European indices thanks to high weightings of energy groups, miners and consumer staples businesses that are less sensitive to economic downturns, gained 0.9 per cent.

The moves followed falls on Thursday after the European Central Bank announced it would reduce its bond-buying scheme earlier than initially planned, causing a sell-off of euro zone government debt.

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A surge in the February reading on US consumer inflation to its highest level in 40 years reinforced expectations that the US Federal Reserve would raise interest rates.

Bonds

European sovereign bonds were broadly steady after wide moves in the previous session. The yield on Germany’s 10-year Bund was flat at 0.27 per cent while the equivalent Italian yield edged 0.01 percentage points lower to 1.91 per cent.

On Thursday the gap between Italy’s benchmark borrowing costs and Germany’s, as measured by the income yields on the nations’ 10-year bonds, had widened by its most since April 2020 as traders priced in less ECB support for weaker eurozone economies.

Clouding the global outlook, analysts at Goldman Sachs downgraded their US economic growth forecast for 2022 to 1.75 per cent on Thursday evening, from 2 per cent previously.

Jan Hatzius, chief economist at Goldman, said the downgrade was made “to reflect higher oil prices and other drags on growth related to the war in Ukraine”.

“We also expect modest drags on growth from further tightening of financial conditions, lower consumer sentiment and slower growth in Europe, and see additional downside risks if shortages of key metals constrain US production,” he added.

Marija Veitmane, strategist at State Street, said she expected US stock indices to fare relatively better than those in Europe while the war continued, however.

“Every market is affected but obviously geographically closer neighbours are going to be affected much more,” she said, citing Europe’s reliance on Russian oil and gas and Ukrainian commodities.

Oil

Futures markets tipped the S&P 500 index, down about a tenth for the year so far, to edge 0.2 per cent higher in early dealings.

In Asia, Hong Kong's Hang Seng index shed 1.6 per cent and Japan's Topix fell 1.7 per cent. Australia's S&P/ASX 200 dropped 0.9 per cent, while China's CSI 300 was up 0.3 per cent.

The Hang Seng Tech index fell as much as 8.9 per cent on Friday – later closing down 3.8 per cent – after the Nasdaq Golden Dragon China closed down 10 per cent at its lowest level since 2016.

The price of oil, which has swung in recent days, steadied on Friday morning with Brent crude, the international benchmark, up 1.5 per cent at $111 a barrel. West Texas gained 1.4 per cent to $107 (€96.50). – Copyright The Financial Times Limited 2022