Title: European Stocks Edge Lower; Soaring U.K. Inflation Weighs

May 18, 2022 04:02AM ET

By: AnalysisWatch

European stock markets fell slightly on Wednesday, struggling to maintain the week's positive momentum as rising inflation in the UK sparked concerns about rising interest rates and slowing economic growth.

By 4 a.m. ET, Germany's DAX was trading 0.1% lower, France's CAC 40 was down 0.1% and Britain's FTSE 100 was down 0.1%.

U.K. data released Wednesday morning showed that consumer inflation hit a 40-year high, climbing 9.0% on-year in April, gaining 2.5% on month, the biggest monthly increase since 1991.

These large increases were largely expected as the cap on household electricity and gas prices was adjusted to reflect the surge in wholesale prices caused by Russia's invasion of Ukraine, but suggest that the Bank of England will need to continue to tighten monetary policy even as the risk of recession is rising.

Deputy governor Dave Ramsden said last week that the central bank will have to keep raising interest rates to control the sharp rise in prices and there is a risk that Britain's worst inflationary crisis in decades will take longer to fully ease.

Similar data from the eurozone is expected later in the session and is expected to show a CPI of 7.5% in April, increasing the likelihood that the European Central Bank will raise rates by 25 basis points in the summer.

On Tuesday, Klaas Knot, a member of the European Central Bank's Governing Council, became the first eurozone official to suggest a possible half-point interest rate hike if inflation risks worsen, although he is backing a smaller measure for now.

In the corporate sector, ABN AMRO shares fell 9% after the Dutch bank warned that the war in Ukraine could impact its business, even though first-quarter net profit was above market expectations.

Oil prices rose on Wednesday on hopes that China is finally coping with a prolonged COVID-19 outbreak, which could boost demand from the world's biggest crude importer.

By 4 a.m. ET, U.S. crude futures were trading 1.6% higher at $111.39 per barrel, while the Brent contract was up 1.2% at $113.26.

In addition, gold futures were down 0.3% at $1,814.15/oz, while EUR/USD traded 0.3% lower at 1.0515.