By Jack Denton
Stocks in Europe inched higher on Wednesday, rebounding from the worst trading day of 2021 as U.S. stock market futures remain set to open lower.
The pan-European Stoxx 600 /zigman2/quotes/210599654/delayed XX:SXXP -3.67% rose 0.3%, while in London the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX -3.64% gained 0.8%. The CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 -4.75% in Paris was 0.2% higher and Frankfurt’s DAX /zigman2/quotes/210597999/delayed DX:DAX -4.15% climbed 0.2%.
U.S. stocks were in the red, with Dow industrials /zigman2/quotes/210598065/realtime DJIA -2.53% tumbling near 500 points by midday after the index declined 473 points on Tuesday to close at 34,269. The S&P 500 /zigman2/quotes/210599714/realtime SPX -2.27% and Nasdaq /zigman2/quotes/210598365/realtime COMP -2.23% similarly fell.
A 1.97% decline on Tuesday marked the worst day for the Stoxx 600 index since Dec. 21, 2020, snapping a two-day winning streak including a fresh record high reached on Monday as 562 of its 600 components slid into the red. Poor trading in Europe on Tuesday followed a technology stock-led selloff in the U.S. on Monday amid rising concerns about U.S. inflation, with U.S. equities also finishing Tuesday in the red.
“A number of reasons have been given for yesterday’s broad-based weakness, the main being concern that the recent sustained rise in commodities prices could prompt a sharper permanent state of rising inflation in the weeks and months ahead,” said Michael Hewson, an analyst at CMC Markets.
In the spotlight on Wednesday is the key U.S. inflation reading for April. Expectations were that inflation, measured by the U.S. Consumer Price Index, or CPI, jumped year-over-year from 2.6% in March to 3.6% in April. In fact, the year-over-year inflation figure was 4.2%—the highest annual CPI figure since 2008.
While the CPI reading of 4.2% represents a significant year-over-year increase, analysts and economists ahead of the reading pointed to an elevated figure largely being due to the base effect. The base effect describes how a very low inflation reading in the year prior can lead to a relatively high reading in the following year if prices normalize. April 2020 saw a CPI of 0.8% amid a significant crash in the price of oil, when crude prices turned negative for the first time.
“Consumer price inflation in every economy is telling us about the oil price a year ago,” said Paul Donovan, the chief economist at UBS Global Wealth Management. “This is not a concern, but markets want to worry about something.”
Hewson added that “while it is important to understand the reasons why markets are concerned about sharp rises in inflation expectations, it’s hard to see how today’s U.S. CPI numbers will do anything to crystallize these concerns into anything meaningful.”
In European economics, the executive branch of the European Union significantly increased its economic forecast through to 2022, expecting the euro area economy to grow by 4.3% this year and 4.4% next year. The European Commission in February forecast 3.8% growth in both years.
Shares in Commerzbank /zigman2/quotes/207286669/delayed XE:CBK -5.58% were a standout in Europe, up 8.5% after net income of €133 million ($161 million) in the quarter outpaced analyst expectations and the German bank hiked its full-year outlook.
Shares in Diageo /zigman2/quotes/205611832/delayed UK:DGE -3.90% , one of the world’s largest distillers and owner of brands including Johnnie Walker, Smirnoff, Captain Morgan, and Guinness, jumped 3.5%. The company said it expects organic operating profit growth to be at least 14% this fiscal year, ahead of organic sales growth.
Flutter /zigman2/quotes/208882914/delayed UK:FLTR -5.63% stock dipped 4.5%, after the bookmaker and gambling giant delayed its plans to float FanDuel in the U.S. and announced that its chief executive of four years would step down.
Shares in Tui /zigman2/quotes/207049334/delayed UK:TUI -10.50% , a German travel and tourism giant that owns hotels, cruise ships, airlines, and travel agencies, fell 2%. The group reported a €1.5 billion pretax loss in the six months to the end of March, but said it was confident in a summer holiday boom.