August 19, 2022: European stock indexes fell on Friday after German producer prices saw their biggest rise on record, while the dollar hit a one-month high as investors stayed cautious.
Asian stocks had struggled to find direction, with concerns about the health of China's economy weighing on sentiment, and by 0820 GMT, the MSCI world equity index, which tracks shares in 47 countries, was down 0.3% on the day.
In Europe, German producer prices – which are seen as a leading indicator for inflation – saw their highest ever increases in July, data released early in the session showed, as energy costs continued to surge. Energy prices were up 105% compared with July 2021, mainly due to higher prices for natural gas and electricity.
Natural gas prices had hit a record closing high on Thursday. Germany's finance ministry said on Friday that the economic outlook for Germany is gloomy.
Europe's STOXX 600 was down 0.4% on the day, on track for a 0.4% weekly decline too.
German bond yields rose, with the 10-year yield gaining as much as 8 basis points to 1.184%, a four-week high, as the producer price data was seen as reinforcing fears of "stagflation" – a combination of high inflation and low growth.
Meanwhile, UK consumer sentiment hit its lowest since at least 1974 in August, with households feeling "a sense of exasperation" about the rising cost of living.
British retail sales data for July came in higher than expected, driven by a surge in online spending, but volumes are expected to resume their decline as costs rise.
The Bank of England has warned that high inflation is likely to tip Britain into a recession later this year.
"When market participants start to return from their holidays and look back at the past days and weeks, they will find central banks still far from having achieved their goals of reining in inflation," ING rates strategists said in a note to clients.
"That means a continued tussle between central bank tightening expectations and recession fears."
The threat of higher borrowing costs also hung over markets as no less than four U.S. Federal Reserve officials signalled there was more work to do on interest rates, with the only difference being on how fast and high to go.
The U.S. dollar benefitted from the Fed's hawkish comments, hitting a one-month high. The dollar index was up 0.2% at 107.7 and the euro was trading at $1.008. The euro has lost 1.7% versus the dollar so far this week.
The dollar also rose versus the Japanese yen, with the pair up 0.5% at 136.54.
The 10-year U.S. Treasury yield climbed higher, close to a one-month high at 2.9317%.
Oil prices slipped after two days of gains, set for a weekly drop as traders worried about a global economic slowdown.
Bitcoin dropped sharply and hit a three-week low of $21,404.
Next week, investors will be paying close attention to the minutes from the European Central Banks' July meeting, as well as comments by U.S. Federal Reserve Chair Jerome Powell when he addresses the annual global central banking conference in Jackson Hole on Aug. 26. [LINK]
UK and euro area "flash" PMI data is due on Aug. 23.