European stocks tumbled in early trading on Friday after a European Central Bank official warned that further aggressive rate hikes in the eurozone may be required to fight persistent inflation.
The regional Stoxx Europe 600 index fell 0.1% from a three-month high at the open, after rising more than 15% from a low in late September. The London FTSE 100 rose 0.1%.
The moves in stock markets came a day after Isabelle Schnabel, a member of the ECB’s executive board, announced her desire to continue raising rates by 0.75 percentage points to bring inflation down in the eurozone from record highs.
The ECB has implemented two such rate hikes in a row, and some investors are hoping for a smaller hike next month amid signs that inflation could be close to peaking on the continent. The prices of German industrial groups fell by 4.2% in October. first fall in two years.
However, Schnabel said that “the biggest risk for central banks remains a policy that is falsely calibrated on the assumption of rapidly declining inflation and therefore underestimation of the persistence of inflation.”
European equities, however, benefited from a “return” of US investors in Europe as the dollar continued to fall from its late September high, said Emmanuel Cau, European equities strategist at Barclays. “U.S. fund buying in Europe for the month is by far the highest since [war in Ukraine] ran in February.
Contracts that track the benchmark Wall Street S&P 500 and the Nasdaq 100 tech index rose 0.3% on Friday. US markets were closed in the previous session due to the Thanksgiving break.
US government bonds rose along with stocks. The two-year Treasury yield, which is particularly sensitive to expected interest rates, fell 0.03 percentage points to 4.45%. Benchmark 10-year Treasury yields also declined 0.03 percentage points to 3.68 percent as the price of securities rose.
Meanwhile, Asian stocks tumbled as pessimism over rising Covid-19 cases in China dampened investor sentiment. Hong Kong’s Hang Seng fell 0.5%, offsetting previous losses, while Japan’s Topix closed flat and South Korea’s Kospi shed 0.4%. China’s CSI 300 added 0.5% after early losses.
Oil prices rose: Brent crude, the international market, rose 0.7 percent to $85.91 a barrel.