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European stocks held back by recession warnings

LONDON: European stocks on Friday failed to match soaring gains overnight in Asia and on Wall Street, as recession prospects offset a boost from slower US inflation.

London’s benchmark FTSE 100 index fell around 0.5 percent in afternoon deals after official data indicated that the UK economy was likely at the start of a prolonged recession.

“The FTSE’s struggles suggest UK investors are more worried about deteriorating domestic, eurozone and global economies than are hopeful about the US and other central banks easing rate hikes,” noted Fawad Razaqzada, market analyst at City Index trading group.

Frankfurt and Paris managed to advance around half-a-percent by mid-afternoon trading, but gains were capped as the EU warned the eurozone was set to fall into recession this winter.

Brussels also hiked regional inflation forecasts for 2022 and 2023 on the back of high energy prices.

Asian equities closed sharply higher after a bumper session on Wall Street Thursday, as lower US inflation dimmed expectations of more aggressive interest-rate hikes from the Federal Reserve.

Hong Kong’s main equities index rocketed more than 7.7 percent, while Tokyo won three percent.

Shanghai won 1.7 percent and oil prices rose strongly as China relaxed some hardline Covid-19 restrictions.

In the US, annual inflation came in at a lower-than-expected 7.7 percent in October, down from 8.2 percent in September.

The latest inflation data should be welcome news to Fed policymakers because prices are “finally showing some response” to the steep rate hikes, said Rubeela Farooqi of High Frequency Economics.

The dollar slumped against rival currencies following the data release as traders bet that upcoming US interest rate hikes will be smaller than in recent months and amid expectations of less stringent Chinese Covid curbs.

The dollar was at a three-month low against the euro, plunging more than once percent at around 1300 GMT, and weakened against the yen and pound.

Daniel Berkowitz, senior investment officer for Prudent Management Associates, struck a note of caution regarding the slower inflation.

“While it always feels good to see markets rally, we think this… is bordering on silly,” he said.

“The market is reacting as if this is the continuance of a multiple-month, downward trend in inflation, and it is not.”

In the UK, inflation is seen rising further. Currently at 10.1 percent, the Bank of England is forecasting it will hit around 11 percent this year before starting to cool.

Traders pounced on the slower US number, however.

Wall Street’s Dow shares index was up 3.7 percent at Thursday’s close and the tech-heavy Nasdaq index soared 7.4 percent.

– Key figures around 1345 GMT –

London – FTSE 100: DOWN 0.5 percent at 7,342.36 points
Frankfurt – DAX: UP 0.3 percent at 14,193.98
Paris – CAC 40: UP 0.4 percent at 6,583.78
EURO STOXX 50: UP 0.5 percent at 3,865.85
Tokyo – Nikkei 225: UP 3.0 percent at 28,263.57 (close)
Hong Kong – Hang Seng Index: UP 7.7 percent at 17,325.66 (close)
Shanghai – Composite: UP 1.7 percent at 3,087.29 (close)
New York – Dow: UP 3.7 percent at 33,715.37 points (close)
Pound/dollar: UP at $1.1788 from $1.1642 on Thursday
Euro/dollar: UP at $1.0310 from $1.0131
Dollar/yen: DOWN at 139.25 yen from 143.15 yen
Euro/pound: UP at 87.52 pence from 87.20 pence
Brent North Sea crude: UP 2.8 percent at $96.31 per barrel
West Texas Intermediate: UP 3.1 percent at $89.17 per barrel

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