By Barbara Kollmeyer
European stocks struggled Friday, with the key gauge barely hanging onto a weekly gain as data revealed surging inflation for the euro area, and miners were pressured amid a dour outlook for iron ore by UBS.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP +0.89% was flat at 466.36, and was looking at no change on the week. The German DAX /zigman2/quotes/210597999/delayed DX:DAX +0.65% was down 0.1%, the French CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 +0.23% rose about 0.3%, while the FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.19% was flat. The euro /zigman2/quotes/210561242/realtime/sampled EURUSD +0.0190% gained 0.2% to $1.1784.
Fresh data showed EU annual inflation climbed to 3% in August, from 2.2% in July — confirming Eurostat’s initial estimate — with nearly half due to rising energy prices, followed by costs for non-energy industrial goods, food, alcohol and tobacco and services. Inflation is now at the highest rate in 10 years.
“Lately, soaring natural gas and electricity prices have further fueled ‘stagflation’fears in the market,” said Aila Muhr, senior euro area analyst at Dankse Bank, in a note to clients. And energy inflation should stay high for the rest of this year, as rising gas and electricity prices counter falling inflation rates for transport fuels, the analyst said.
Prices for natural gas in Europe and the U.K. have been soaring amid slowing supplies from Russia, and lack of wind and rain to generate renewable sources. That has triggered costly bills for consumers that governments have been scrambling to control.
The European Central Bank expects its 2% inflation target will be reached by 2025, which indicates interest rate increases could come in just over two years, the FT reported , citing unpublished internal models. The paper also said chief economist Philip Lane discussed the likelihood of a rate rise by 2023 in a call with German banks this week. The ECB rebuffed the report in a comment to the FT.
Mining stocks were under pressure, with Anglo American /zigman2/quotes/201381512/delayed UK:AAL -3.11% shares down 4%, after UBS cut the miner to sell, along with Vale /zigman2/quotes/204339679/composite VALE +0.85% and Fortescue Metals Group /zigman2/quotes/202351558/delayed AU:FMG -1.40% , which slumped 11% in Australian trading,. UBS also kept a sell rating on Rio Tinto /zigman2/quotes/208934945/delayed UK:RIO +0.23% /zigman2/quotes/202627887/composite RIO +0.79% and a neutral rating on BHP /zigman2/quotes/208108397/composite BHP +0.35% /zigman2/quotes/206213719/delayed UK:BHP -0.83% .
UBS predicted iron ore prices will fall below $100/t by year-end, amid a weaker China steel production and a weak property market. The industrial metal has been under intense pressure since August.
Elsewhere, deal news saw shares of German pharmaceutical group Biotest climbing 8% after Spanish pharmaceutical company Grifols SA said it would pay €1.1 billion for the 90% stake held by China’s Tiancheng Pharmaceutical, in a deal valuing Biotest at €1.6 billion.
Travel and airline stocks continued to rise on Friday, with shares of International Consolidated Airlines /zigman2/quotes/208070069/delayed UK:IAG -1.10% topping the Stoxx 600 gainers list with a nearly 6% gain, with Deutsche Lufthansa /zigman2/quotes/201210530/delayed XE:LHA -1.06% rising 3% and Aeroports de Paris /zigman2/quotes/203616065/delayed FR:ADP +1.57% rising nearly 3%.