European shares slip as investors await economic data and US earnings

European stocks slipped on Wednesday as UK inflation fell less than expected in March, and ahead of a fresh batch of US corporate earnings, with investors on the lookout for signs of slowing growth and the impact of higher interest rates.

The region-wide Stoxx 600 fell 0.4 per cent while Germany’s Dax and France’s CAC 40 both lost 0.2 per cent. Data out earlier in the day confirmed eurozone inflation fell to 6.9 per cent in March from 8.5 per cent in February.

London’s FTSE 100 lost 0.3 per cent after annual UK consumer price growth last month eased by less than expected to 10.1 per cent, down from 10.4 per cent in February. Economists had expected a decline to 9.8 per cent.

Core inflation was unchanged at 6.2 per cent while prices for food and non-alcoholic drinks rose 19.2 per cent — “the highest seen for over 45 years”, said the Office for National Statistics — from 18.2 per cent in February. The pound briefly climbed before giving up its early gains to trade 0.1 per cent lower against the dollar to $1.241.

Paul Dales, chief UK economist at Capital Economics, said the March figures meant “it’s become even more likely” the Bank of England would raise interest rates to 4.5 per cent in May. “This release even makes us wonder if that won’t be the peak.”

UK government bonds sold off on Wednesday morning, with yields on two-gilts up 0.13 percentage points to 3.81 per cent — the highest level since late February. Futures markets now expect UK interest rates to peak at 5 per cent in November, having priced in a peak of 4.78 per cent in September before March’s inflation data.

“It’s now clear the UK has an inflation problem that is worse and more persistent than in Europe and the US”, said Ed Monk, associate director at investment management company Fidelity International.

Across the Atlantic, contracts tracking Wall Street’s benchmark S&P 500 slipped 0.2 per cent while those tracking the tech-heavy Nasdaq 100 lost 0.1 per cent ahead of the New York open.

Those moves came after Goldman Sachs on Tuesday said its first-quarter profits slumped 18 per cent. Results from Tesla, IBM and Morgan Stanley are due out later in the day. Of the 19 S&P 500 stocks to have so far reported, 15 have beaten earnings per share estimates and four have missed, according to Mike Zigmont, head of trading at Harvest Volatility Management.

US government debt sold off, with the yield on two-year Treasuries up 0.09 percentage points to 4.24 per cent, its highest level in a month, and the yield on 10-year debt up 0.03 percentage points to 3.6 per cent.

Asian stocks retreated, with Hong Kong’s Hang Seng index down 1.4 per cent and China’s CSI 300 index losing 0.9 per cent, down from its highest level since early February.