European stocks mixed ahead of US inflation data

European equities wavered on Wednesday, reflecting caution ahead of US inflation data that may bring forward expectations of the first coronavirus-era rate rise in the world’s largest economy.

The regional Stoxx Europe 600 opened 0.2 per cent lower, before inching 0.3 per cent higher as tech shares were lifted by German software group SAP raising its full-year earnings guidance.

London’s FTSE 100 lost 0.3 per cent while futures markets indicated that the blue-chip S&P 500 share index would trade flat in early New York dealings.

Economists polled by Reuters expect data out later in the day to show US consumer prices rose 5.3 per cent in September from the same month last year, marking the fifth month they have risen at 5 per cent or more, as the UK and the eurozone have followed similar trends.

Investors and central banks have moved from characterising inflation as a temporary impact of industries reopening after pandemic-related shutdowns to considering whether it will become prolonged as wages increased and a gas shortage in Europe pushed up oil prices.

“Markets are now debating how persistent inflation will be and it is easy to see that debate continuing into the middle of next year,” said Zehrid Osmani, head of Martin Currie’s global portfolio trust.

Chart showing a rise in US inflation

The spectre of inflation eroding the investment returns from stocks and bonds has pushed the FTSE All-World share index more than 4 per cent below its early September all-time high and knocked government debt markets. On Wednesday, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, was steady at 1.58 per cent, around its highest since June.

The IMF forecasts that price rises will fall back to pre-pandemic levels in mid-2022. But in a report on Monday, it also warned central banks that “risks are skewed to the upside” and said monetary policymakers should be “very, very vigilant”.

European natural gas contracts for delivery in November rose 6.1 per cent on Wednesday to €93 per megawatt hour, almost five times their level from the start of the year, after Chinese trade data showed the nation’s imports of the commodity rose last month to their highest since January. Brent crude, the international oil benchmark, dipped 0.2 per cent to $83.2 a barrel, close to a three-year high.

The dollar index, which measures the US currency against six others, fell 0.2 per cent but remained close to its highest point in a year.

Sterling rose 0.1 per cent against the euro to purchase €1.18, while the yen was flat at around its weakest against the dollar since December 2018.

In Asian markets, the Hong Kong Stock Exchange cancelled its trading session on Wednesday because of the effects of Typhoon Kompasu. Japan’s Topix share index closed 0.5 per cent lower, while mainland China’s CSI 300 index rose 1.2 per cent after trade data showed unexpectedly strong exports for September.

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