Europe close: Main markets finish well into the red
European stocks finished well into the red at their respective closes on Tuesday, hampered by rising government bond yields and a slightly disappointing eurozone sentiment survey that offset healthy growth numbers.
The pan-European Stoxx 600 was down 0.92% at 36.12, while Germany’s DAX fell 0.95% to 13197.71 and the CAC 40 in Paris dropped 0.87% to 5,473.78.
In Spain, the IBEX 35 was off 1.21% at 10,428.20, while in London the FTSE 100 slipped 1.09% to 7,587.98 and the domestically-focussed FTSE 250 was 1.01% below the line at 20,370.93.
A preliminary 'flash' estimate of eurozone GDP showed that over the whole of 2017 the bloc grew 2.5% compared to the previous year, the strongest growth since 2007.
The report from Eurostat said that growth in the fourth quarter continued to grow at a 0.6% rate compared to the prior quarter, as expected.
Meanwhile, the European Sentiment Indicator reading of 114.7 fell some way short of consensus forecasts for January of 116.3, although this was mainly because the back data was revised down, with December's reading cut to 115.3 from 116.
At the country level, declines in sentiment in France and Italy more than offset small improvements in Germany and Spain.
But it is inflation that matters more, said analyst Neil Wilson at ETX Capital amid mixed German inflation news and ahead of eurozone consumer price data the following day.
"Euro bulls should be concerned a significant move lower in core inflation, were it to happen, would pull the rug from under the ECB just as it is looking to new staff projections in March to bolster the case for ending QE.”
A slide in the dollar saw the euro change course from slight losses early on Tuesday to climb 0.15% to $1.2401 just after 1700 GMT, while the single currency's roller coaster day saw it weaken 0.29% against sterling at £0.8799, but strengthen against the yen to ¥134.97.
The single currency was being held back at its lowest in a week as the state-by-state release of German inflation data pointed to a slowdown that could, Wilson said, frustrate the European Central Bank's policy makers if it leads to a disappointing number for the eurozone consumer price index on Wednesday.
The renewed bout of weakness for the dollar could be a result of Treasury selling, suggested Mike van Dulken at Accendo Markets, simultaneously helping the pound and euro and therefore serve as a headwind for their respective national equity indices.
Bond markets were in focus after yields in Europe and the US rose on Monday following comments from Dutch Central Bank president and European Central Bank governing council member Klaas Knot and ahead of this week’s rate announcement by the Federal Reserve.
US 10-year Treasury yields pushed above the 2.7% level for the first time since April 2014 and the two-year yield hit its highest level since September 2008, while the 30-year T-bill approached 3%.
Eurozone yields were driven by comments from Knot, after he said the European Central Bank’s asset purchase programme should end “as soon as possible”.
He argued that there is not a single reason left to continue the quantitative easing in the euro area and said the ECB’s bond buying programme has already achieved “what could realistically be expected of it”.
Some fairly hawkish rhetoric from ECB board member Benoit Coeure also pushed yields higher.
US yields were lifted by the prospect that the Federal Reserve could revise their forecasts higher for the US economy in light of the recent tax changes brought in by the Trump administration.
Brexit was in the headlines again, with UK investors concerned about a leaked cabinet report highlighting the impact of Brexit on the UK economy.
Britain will be worse off under all plausible scenarios when it leaves the EU, confidential analysis produced for the government shows.
A paper being circulated among cabinet ministers, that was leaked overnight to Buzzfeed, estimates UK growth would be 5% lower under a comprehensive free trade agreement with the EU over the next 15 years compared with staying in the EU.
If there is no deal and the UK reverts to World Trade Organization rules, growth would be 8% lower.
On the corporate front, German software company SAP was in focus after announcing the acquisition of Nasdaq-listed Callidus for $2.4bn, with its shares finishing down 2.13%.
Cable group Altice fell 3.26% after saying it is reducing its share capital to help improve its overall returns, while Dutch electronics conglomerate Philips retreated 3.67% despite reporting a 4% jump in like-for-like sales in 2017 following a strong fourth quarter.
French laundry and services group Elis was also weaker by 1.9% even as it said it expects cost synergies of at least €80m by 2020 from its acquisition of London-listed Berendsen, double its previous estimate.