Europe's main stock markets stuttered Tuesday as dealers balanced Eurozone data showing both an economic slowdown and accelerating inflation, dealers said.
Frankfurt and Paris stocks wobbled but London rose on strong second-quarter BP results — and despite growing expectation that the Bank of England could raise British interest rates this Thursday to the highest level for more than nine years.
Economic growth in the 19-nation Eurozone slowed in the second quarter this year, data showed, amid rising concerns over the impact of global trade tensions fueled by Washington.
Gross domestic product (GDP) expansion in the single currency bloc hit 0.3 percent in the three months to June, below the 0.4 percent of the previous quarter.
Eurozone inflation meanwhile accelerated in July to 2.1 percent on high oil prices. That was the fastest rate since late 2012 and pushed the euro higher versus the dollar.
Inflation tempers GDP impact
“A disappointing eurozone GDP reading was countered by a better-than-forecast inflation figure, flattening out the potential reaction to either number,” noted Spreadex analyst Connor Campbell.
“The euro-damaging nature of that (GDP) number was tempered by the news that inflation hit 2.1 percent in July, the metric crossing the European Central Bank's long-held 2.0-percent target for the first time since 2012.”
Uncertainty over trade helped ECB governors last week decide to leave interest rates at historic lows even though they stuck to plans to halve “quantitative easing” or mass bond-buying from October before wrapping up the stimulus at the end of 2018.
The latest data has now placed ECB governors in a quandary, according to Capital Index research director Kathleen Brooks.
“Ultimately, stocks could come under pressure as the latest Eurozone data suggests that the ECB is in a bind — weaker GDP, yet inflation is rising at its fastest rate since December 2012,” Brooks told AFP.
“Considering the ECB has an inflation mandate only, this could indicate that rates may have to rise just at the time that growth is starting to slow. This is good news for the euro, bad news for stocks.”
BoJ tweaks policy
Asian equities traded mixed as the Bank of Japan tweaked its monetary policy in a bid to make its massive easing programme sustainable.
Tokyo's key Nikkei index closed marginally higher after the BoJ announced it had revised down inflation forecasts while making minor changes to its ultra-loose monetary policy for the first time in nearly two years.
US tech equities had tumbled Monday, pushing the tech-rich Nasdaq Composite Index in New York down 1.4 percent.
The slump affecting the sector's biggest five stocks — Facebook, Apple, Amazon, Netflix and Google — has injected trepidation into world markets ahead of an Apple earnings announcement later Tuesday, analysts said.
Silicon Valley shares have been in retreat since Facebook last week signaled slower growth as it spends more on data security in response to criticism over its privacy policies.
Back in London, a growing number of economists forecast that the Bank of England could lift its key interest rate by a quarter-point to 0.75 percent on Thursday, as it seeks to tackle stubbornly above-target UK inflation.
Key figures at 1100 GMT
London – FTSE 100: UP 0.5 percent at 7,742.33 points
Frankfurt – DAX 30: DOWN 0.1 percent at 12,791.12
Paris – CAC 40: UP 0.1 percent at 5,495.83
EURO STOXX 50: UP 0.3 percent at 3,523.74
Hong Kong – Hang Seng: DOWN 0.5 percent at 28,583.01 (close)
Shanghai – Composite: UP 0.26 percent at 2,876.40 (close)
Tokyo – Nikkei 225: UP 0.04 percent at 22,553.72 (close)
New York – Dow Jones: DOWN 0.6 percent to 25,306.83 (close)
Euro/dollar: UP at $1.1729 from $1.1706 at 2100 GMT
Pound/dollar: UP at $1.3157 from $1.3133
Dollar/yen: UP at 111.56 yen from 111.04 yen
Oil – Brent Crude: DOWN 20 cents at $74.77 per barrel
Oil – West Texas Intermediate: DOWN 31 cents at $69.82
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