Europe close: Stocks mostly lower despite dip in single currency
European stocks were mixed on Wednesday as inflation remained subdued and European Central Bank talk pushed the single currency lower.
By the closing bell, the benchmark Stoxx 600 had fallen 0.1% to 397.97, alongside a 0.47% fall in Germany's Dax to 13,183.96 while France's CAC 40 erased 0.36% to end at 5,493.99.
The DAX was helped by euro weakness as, despite briefly reaching a fresh three-year high against the dollar overnight, the currency was hit as reports citing ECB sources gave the market cause for pause.
However, as the effects of those reports wore off the German benchmark fell back, ending the session near its worst levels.
Anonymous ECB sources were reported by Reuters as saying that the central bank's governing council would not be revising its forward guidance at next week's meeting, despite discussion of the topic at its last meeting.
ECB Vice President Victor Constancio said in an interview to Italian media that the authority was in no rush to alter its quantitative easing plans. He added that although the ECB does not target the exchange rate, they would be concerned about sudden movements in the euro that did not match fundamentals in the Eurozone.
Mid-morning eurozone inflation data confirmed the subdued level of 1.4% last month, keeping the issue at the forefront of the central bank's thoughts.
December's consumer price index was up 0.4% on the preceding month, as indicated at the initial 'flash' reading, up from 0.1% a month earlier. On an annual basis, euro area CPI was unchanged from the first reading at 1.4%, easing from 1.5% the previous month. Core CPI, which excludes more volatile prices such as fuel and food, also remained unmoved at 0.9%.
The ECB, according to minutes of its December meeting, had concluded that the current weakness may be due to one-off factors and therefore be temporary. The authority indicated asset purchases are likely stop after September 2018.
The euro fell around 0.25% against the dollar to $1.2236 and by 0.46% versus Sterling to £0.8847.
Looking forward, economist Florian Hense at Berenberg forecast that annual rates of headline inflation are "likely to moderate slightly" in the coming month as the base effect from the stronger increase in oil prices a year ago outweighs the recent renewed spike in oil prices. "From spring onwards, inflation is likely to edge up again."
He said recent hawkish comments, including the minutes of the last meeting, indicate ECB is likely stop asset purchases towards the end of this year.
"Becoming ever more confident in the convergence of inflation towards its target, and possibly also fearing to fall behind the curve, the ECB will likely adjust its forward guidance and policy. However, in order to not trigger a further appreciation of the euro, the ECB will likely change its communication only cautiously and gradually – and not in January already."
John Dolan, senior dealer at FEXCO, said the impetus behind the euro's recent run of increased hopes for the ECB to return monetary policy to normal "remains intact".
"Mario Draghi may not have an inflationary imperative to dial down QE, but with the Eurozone enjoying strong growth and falling unemployment, the ECB’s monetary stimulus is looking ever more anachronistic."
Dolan was also expectant that Germany’s political uncertainty could soon end, with the coming weekend holding the potential formation of a new coalition led by Angela Merkel.
"A return to stability in the Eurozone’s most powerful economy would remove one more hurdle to monetary tightening. For this reason the currency markets have largely looked through today’s easing of inflation, and are still assuming that the end of the Eurozone’s loose monetary policy is becoming ever more nigh."
Among European stocks, Sweden's Skanska cratered after the construction group revealed plans to make a SKR 1.1bn as part of restructuring efforts to boost profitability. The company said it will lay off 3,000 employees around the world, including quitting the US power sector and focusing on its core business in the UK.