European stock markets mixed as rising inflation in China spooks traders

LaToya Harding
·Contributor
·3 min read

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People look at the London skyline, from Greenwich Park in London. Picture date: Saturday March 20, 2021. (Photo by Kirsty O'Connor/PA Images via Getty Images)
This week as being a record-breaking week for stock markets amid optimism over an economic reopening, the ongoing success of the vaccination programme and the insurance of global stimulus. Photo: Kirsty O'Connor/PA Images via Getty Images

Europe closed with a mixed picture on Friday despite a record-breaking week for stock markets amid optimism over an economic reopening, the ongoing success of the vaccination programme and the insurance of global stimulus.

In London, the FTSE 100 (^FTSE) underperformed against its peers, falling 0.38% after touching a post-pandemic high on Thursday, while the CAC (^FCHI) edged 0.03% lower in France, and the German DAX (^GDAXI) was 0.15% up.

UK stocks have been powered higher in recent sessions by optimism about the next stage of economic reopening in Britain on Monday. Economists believe pent up demand could lead to a mini-economic boom as restrictions lift. 

However, the FTSE was dragged down by tobacco, pharmaceuticals and banking on Friday. Travel stocks and leisure were also knocked by news that a return to normal holidays is likely to face significant short-term barriers.

New proposals published by the government's Global Travel Taskforce includes a traffic light system, which categorises countries based on risk as well as COVID tests, even for people arriving from low-risk green destinations.

The announcement may mean that anyone contemplating a holiday in Europe may not be able to do so, due to the low vaccination rates there.

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Connor Campbell of SpreadEx said the FTSE's fall was not enough to properly endanger its recent rise, but was still a knock to any momentum the index had been building this week.

Elsewhere, German industrial production unexpectedly fell 1.6% in February, against economists’ expectations for a gain. According to Germany’s federal statistics office, German production is down by about 6.4% over the year.

Carsten Brzeski, global head of macro at ING, an investment bank, said: "February industrial data makes it hard to see how the economy could still escape a contraction in the first quarter.

"It would need an explosion of manufacturing and construction activity in March to prevent the German economy from falling into contraction in the first quarter of the year."

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Across the pond, the S&P 500 (^GSPC) rose 0.18% by the European close and the tech-heavy Nasdaq (^IXIC) fell 0.05%. The Dow Jones (^DJI) edged 0.23% higher.

It came as receding inflation fears in the United States pushed down bond yields and lifted Wall Street yesterday.

Benchmark 10-year Treasury yields held close to Thursday's two-week trough near 1.6%, which had lifted US tech shares and powered the S&P 500 to a record close.

Richard Hunter, head of markets at Interactive Investor, said: “Steadying inflation concerns have opened the door for renewed buying interest in growth stocks.

“While the relief may be temporary, the previous rotation from value to growth has reversed. This resulted in a strong showing from big technology stocks which helped lift the S&P 500, where the influence of the tech sector is significant, to another record closing high.”

Overnight, softness in Chinese shares capped gains in Asia. MSCI's broadest gauge of world stocks set a record high earlier in the Asian session and last stood almost flat.

The Nikkei (^N225) climbed 0.20% while the Shanghai Composite (000001.SS) dipped 0.92%.

The Hang Seng (^HSI) fell 1.12%, not helped by worries about further tension between Washington and Beijing.

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