Europe close: Stocks drop on hawkish comments from ECB member

(Sharecast News) - A strong start on Wall Street wasn't enough to lift European stocks on Friday, which sank into the red in afternoon trade after a European Central Bank member said markets were getting ahead of themselves hoping for an imminent interest-rate cut. The FTSE 100 was the only major equity index in positive territory by the close, but only managed to eke out a 0.04% gain. The rest of the continent was nursing losses of 0.1% to 0.4%, resulting in a 0.3% fall for the pan-European Stoxx 600 index to 469.24 , having now fallen for four out of the past five sessions.

US stock markets opened higher with the S&P 500 and Nasdaq 100 surpassing their record closing highs as tech companies continue to be lifted by strong results from chipmaking giant TSMC.

However, in Europe, market sentiment appeared to have been dampened by comments out of the World Economic Forum in Davos, Switzerland, with a member of the European Central Bank suggesting that investors are getting ahead of themselves with interest-rate expectations.

Amid increasing optimism that the ECB will soon move to cut interest rates with inflation expected to drop sharply in January and February - following what was seen as a temporary bounce in December - Austrian central bank head Robert Holzmann said that markets pricing in a sooner-than-anticipated rate cut "might become self-defeating".

"We are optimistic that we have a credible prospect of a return of inflation to 2% in 2025. But a lot still needs to go well for that to happen," Knot said. "Underlying that projection is an interest rate path, assumed interest rate path, that contains significantly less easing than is currently embedded in market pricing. So that runs the risk to become self-defeating."

Commenting on today's stock market activity, Axel Rudolph, analyst at IG, said: "As the Nasdaq 100 is hitting new all-time record highs European stock indices have seen their second, or in case of the FTSE 100 their third, weekly loss since the beginning of the year.

"Pared back rate cut expectations to the second half of the year have impacted European stocks more negatively as their economies look less healthy than their US counterpart."

In other news, UK retail sales sank 3.2% in December after growing by 1.4% the month before, surprising economists who had pencilled in a fall of just 0.5%. This was the steepest monthly decline since January 2021.

In stock movements, French digital business services firm Teleperformance was the best performer on the Stoxx 600 after broker Stifel upgraded the stock from 'hold' to 'buy', saying its valuation is "attractive" after the shares have dropped 50% over the past year.

London's Flutter Entertainment was extending gains made on Thursday after the gambling company impressed with its US growth strategy, helped today by comments from Deutsche Bank which upped its target price for the shares.

Meanwhile, AstraZeneca was in demand on the back of news that Japanese regulators have given the green light for its Voydeya blood disorder drug.