European stocks lower as eurozone inflation jumps to 10-year high

·3-min read
The London headquarters various banks, including Citi, HSBC and Barclays, at Canary Wharf in east London. Many banks are moving assets from London to other EU cities in the face of uncertainty over Brexit. Picture date: Monday December 3, 2018. Photo credit should read: Matt Crossick/ EMPICS Entertainment.
UK business confidence climbed six points to 36% in August, according to the Lloyds Bank Business Barometer. Photo: Matt Crossick/EMPICS Entertainment

European stocks moved lower on Tuesday in London as a new reading for inflation in Europe showed it had jumped to a 10-year high of 3% in August — well above target.

Core inflation was subdued in July due to a shift in the sales period last year and some other, more minor statistical factors. The data headed higher in August with a reading of 1.6%.

The change in last year’s sales period and German VAT increase were the main drivers behind the jump in non-energy industrial goods prices from 0.7 to 2.7%, said analysts at ING.

"These effects are temporary and the increase in services inflation was much smaller, from 0.9 to 1.1%. Yes, price pressures are increasing, but August’s dramatic move does overstate the underlying inflation developments," they said.

The FTSE (^FTSE) was down 0.4% by the close in London. France's CAC (^FCHI) was 0.3% lower and Germany's DAX (^GDAXI) fell 0.5%.

Meanwhile, a new barometer of business confidence soared to its highest level since April 2017.

Watch: What is inflation?

According to the Lloyds Bank Business Barometer, confidence climbed six points to 36% in August, while overall economic optimism also increased by 6%. This came after a slight dip in July.

The report showed that pay growth expectations also reached a three-year high, with more than a third of businesses predicting rises of at least 2% over the next 12 months.

Over in the US, stocks swung between gains and losses following a close at record highs for both the S&P 500 (^GSPC) and the Nasdaq (^IXIC).

The S&P 500 and Dow (^DJI) were almost flat by the close in London, while the Nasdaq was down 0.1%.

Confidence is wavering in the US despite the Federal Reserve saying at the end of last week that interest rates would not be raised immediately after stimulus tapering and would only be changed once the economy is near full employment with inflation in check.

"Investors may take more exposure to the stock markets going forward, as we are still in the initial phase of the expansion cycle," said Naeem Aslam, chief market analyst at AvaTrade.

"Furthermore, low interest rates along with robust earnings provide a strong case for a potential bullish market and higher stock prices in 2022. Having said that, investors should note that unexpected shocks could have an adverse impact on the financial markets."

Rising caseloads of the Delta variant of COVID will be playing on investors' minds.

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Overnight in Asia markets headed higher. The Nikkei (^N225) was 1.1% higher by the close, the Hang Seng (^HSI) moved up 0.7% and the SSE Composite rose 0.3%.

The gains in Chinese stocks were muted by a new report showing the Delta variant of COVID-19 had put a lag on economic recovery.

"It is likely that the ongoing government clampdowns in multiple sectors, notably student tuition and technology, are impacting both employment concerns in those affected and broader consumer confidence as fears of wider interventions rise," said Jeffrey Halley, senior market analyst for Asia Pacific at OANDA.

"The latter is a fair point, with China announcing more limits on online game time for children and investigating brokerage margin policies."

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