European stocks fell in early trading on Friday after a European Central Bank official warned that further aggressive interest rate hikes in the eurozone may be needed to tackle persistent inflation.
The regional Stoxx Europe 600 opened marginally 0.1% off a three-month high after rising more than 15% from its late-September low. London’s FTSE 100 rose 0.1%.
The moves in stock markets came a day after ECB executive board member Isabel Schnabel signaled her desire to continue raising rates by 0.75 percentage points to bring down inflation in the zone. euro from record highs.
The ECB has implemented two such rate hikes in a row, with some investors hoping for a smaller hike next month on signs that inflation may be on the verge of peaking across the continent. Prices charged by German industrial groups fell 4.2% in October, the first drop in two years.
However, Schnabel said that “the greatest risk for central banks remains a falsely calibrated policy on the assumption of a rapid decline in inflation, and therefore on an underestimation of inflation persistence.”
European stocks nevertheless benefited from the “return to Europe” of American investors as the dollar continued to fall from its high in late September, said Emmanuel Cau, European equity strategist at Barclays. “Month-to-date purchases of US-domiciled funds in Europe are the highest since the [war in Ukraine] started in February.
Contracts that track Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 both rose 0.3% on Friday. US markets were closed in the previous session for the Thanksgiving break.
US government bonds rebounded along with stocks. The two-year Treasury yield, which is particularly sensitive to interest rate expectations, fell 0.03 percentage points to 4.45%. The benchmark 10-year Treasury yield also slipped 0.03 percentage points to 3.68% as the price of the security rose.
Asian stocks, meanwhile, fell as pessimism over rising Covid-19 cases in China undermined investor sentiment. Hong Kong’s Hang Seng index fell 0.5%, paring earlier losses, while Japan’s Topix finished flat and South Korea’s Kospi lost 0.4%. The Chinese CSI 300 gained 0.5% after its first losses.
Oil prices rose, with Brent, the international marker, up 0.7% at $85.91 a barrel.