European stocks experienced a significant drop on Tuesday, following higher than anticipated inflation of consumer prices in the United States. This inflation disrupts hope for a reduction in interest rates by the Federal Reserve, as many investors were already analyzing regional economic data and updates on corporate earnings.
In a recent report, the U.S. Labor Department announced that its consumer price index increased by 0.3% in January, following a 0.2% increase in December. This rise was unexpected, as many economists predicted a continuation of the 0.2% increase. Notably, consumer price growth showed signs of slowing, with the annual rate decreasing from 3.4% in December to 3.1% in January. However, economists had forecasted a slower growth of 2.9%.
The pattern of inflation has undermined the likelihood of an immediate decrease in interest rates by the Federal Reserve, whose officials insist they need confidence that inflation is decreasing before proceeding with rate adjustments. European stocks, as a result, have faltered. The pan European Stoxx 600 fell 0.95%, with the UK's FTSE 100, Germany's DAX, France's CAC 40, and Switzerland's SMI all experiencing declines.
Particular markets in Europe, such as Austria, Belgium, Denmark, Finland, and others also reported significant to moderate losses, while Russia experienced a slight increase. In the UK, companies such as Barratt Developments, Taylor Wimpey, and Berkeley Holdings, among others, also reported reductions of 3 to 5%. Companies such as AstraZeneca, GSK, Centrica, and HSBC Holdings, however, saw modest gains.
France reported stable unemployment rates in the fourth quarter following an increase in the previous two quarters. Meanwhile, the UK jobless rate fell, coming in below economists' predictions. Lastly, German economic sentiment was stronger than expected due to foreseeable interest rate cuts in response to slowing inflation. Despite this, the president of ZEW noted that the German economy is struggling. On a brighter note, Switzerland's consumer price inflation eased more than predicted in January, reaching its lowest level in over two years.
