European stocks slipped in early trade on Friday after a European Central Bank official warned that further aggressive interest rate rises in the eurozone may be needed to combat persistent inflation.
The regional Stoxx Europe 600 edged 0.1 per cent lower at the open, off a three-month high after having risen more than 15 per cent since its late-September low. London’s FTSE 100 rose 0.1 per cent.
The moves in equity markets came a day after Isabel Schnabel, an ECB executive board member, signalled her desire to continue with rate rises of 0.75 percentage points in order to bring eurozone inflation down from record highs.
The ECB has implemented two such rate increases in a row, with some investors hoping for a smaller rise next month on the back of signs that inflation may be close to peaking across the continent. Prices charged by German industrial groups fell 4.2 per cent in October, the first decline in two years.
However, Schnabel said “the largest risk for central banks remains a policy that is falsely calibrated on the assumption of a fast decline in inflation, and hence on an underestimation of inflation persistence”.
European stocks were nonetheless benefiting from US investors “returning to Europe” as the dollar continued to slide from its late September high, said Emmanuel Cau, European equity strategist at Barclays. “US domiciled funds buying of Europe month to date is the highest since the [war in Ukraine] began in February.”
Contracts tracking Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 both rose 0.3 per cent on Friday. US markets were closed in the previous session for the Thanksgiving break.
US government bonds rallied along with equities. The two-year Treasury yield, which is particularly sensitive to interest rate expectations, fell 0.03 percentage points to 4.45 per cent. The benchmark 10-year Treasury yield also slipped 0.03 percentage points to 3.68 per cent as the price of the security rose.
Asian equities, meanwhile, sank as pessimism over rising Covid-19 cases in China damped investor sentiment. Hong Kong’s Hang Seng index dropped 0.5 per cent, trimming earlier losses, while Japan’s Topix finished flat and South Korea’s Kospi shed 0.4 per cent. China’s CSI 300 gained 0.5 per cent after early losses.
Oil prices ticked higher, with Brent crude, the international marker, up 0.7 per cent at $85.91 per barrel.