Europe close: Shares lower on EZ CPI jump, weak German retail sales

(Sharecast News) - European shares pared losses at the close on Friday as investors digested a weaker-than-expected rise eurozone inflation, weaker Germany retail sales numbers and the impact of an anti-dumping probe by China on spirits manufacturers.

The pan-regional Stoxx 600 index closed 0.27% at 476.38 with all major bourses lower.

In the US, the Institute for Supply Management's services PMI unexpectedly fell to 50.6 in December, the lowest reading seen in seven months, down from both 52.7 in November and expectations for a reading of 52.6.

New orders slowed sharply, down from 55.5 to 52.8, while both employment and inventories also contracted.

On the other hand, production growth accelerated to 56.6 from 55.1, and price pressures eased from 57.4 to 58.3.

Meanwhile, eurozone inflation accelerated in December, according to Eurostat, but by less than expected, reinforcing expectations that the European Central Bank will soon move to cut interest rates.

The annual change in the harmonised index of consumer prices rose to 2.9% last month, a significant increase from 2.4% in November but below the consensus estimate for a stronger increase to 3.0%.

This jump was largely a result of a big drop in energy prices in Germany in December 2022 due to one-off subsidies by the government which is expected to be only temporary as core inflation continued its downward trend.

Headline inflation readouts for France and Germany for December were both slightly higher on the previous month.

German retail sales dropped sharply in November as non-food sales tanked, according to the federal statistics office, Destatis.

Retail sales were down 2.5% during the month, wiping out the 1.1% gain registered in October, and surprising analysts who had pencilled in a decline of just 0.1%.

Compared with November 2022, the annual rate of decline worsened to 2.4% after a 0.1% fall the month before and well below the 0.5% decrease expected by the market.

"Markets have stalled in the first week of trading this year, unable to carry through last month's momentum in the face of renewed concerns around the amount, pace and timing of potential Federal Reserve interest rate cuts," said Richard Hunter, head of markets at Interactive Investor.

"The minutes from the latest Fed meeting earlier in the week appeared to dash any hopes of an imminent cut. While there was an admission that rates had peaked, the previous mantra of higher for longer seemed to remain firmly intact, dependent on economic data and inflation in particular."

"Despite this reiteration, market consensus is still pencilling in the first cut in March, although with rather less conviction than before, with the most likely timing now moving out to May."

In equity news, Endeavour Mining shares slumped after chief executive Sebastien de Montessus was fired with immediate effect for serious misconduct related to an ­irregular payment of $6m and amid allegations over his personal ­conduct toward colleagues.

Shares in French spirits companies Remy Cointreau and Pernod Ricard both registered sharp falls fell after China announced the launch of an anti-dumping investigation on brandy imported from the European Union.

Online pharmacy DocMorris surged by more than 10% after an upgrade by Berenberg to ;buy' from 'hold'.

Reporting by Frank Prenesti for Sharecast.com