Investors adopted a cautious tone in early trade Friday, ahead
of European inflation figures and after German retail data once
again underscored the fragility of the continent's economic
recovery.
Rebounding tentatively from a drop a day earlier triggered by a
sudden resurgence in geopolitical tensions between Russia, Ukraine
and the West, the Stoxx Europe 600 rose 0.3%, while France's CAC
and the U.K.'s FTSE added 0.3% and 0.2% respectively.
Germany's DAX edged 0.2% higher following a 1.1% slump on
Thursday, even though figures showed retailers in July posted their
biggest monthly fall in sales since January 2012.
Sales fell 1.4% compared with the previous month in real,
calendar- and seasonally adjusted terms, sharply underperforming
expectations for a flat reading in a survey of analysts by Dow
Jones Newswires.
Later in the session, inflation data for the region will be
watched closely, with investors hoping it will shed more light on
the European Central Bank's likely path of policy action.
"We maintain our forecast of +0.3% year-over-year, but given the
stability in German inflation we reckon an unchanged reading from
last month of +0.4% is possible," Mizuho Chief European Economist
Riccardo Barbieri said.
"A stable or at most slightly declining inflation reading would
reduce pressure on the ECB to take immediate policy action at next
week's meeting," he added.
Late last week, ECB President Mario Draghi hinted that the
central bank could be preparing further stimulus, even raising the
prospect of quantitative easing being employed, which sent equities
to multiweek highs and the euro to an 11-month low against the
dollar.
Economists later concluded, however, that the ECB is most likely
to want to gauge the impact of its June measures and to assess the
take up of the targeted longer-term refinancing operation before
taking further action.
In currency markets, the euro edged lower against the U.S.
dollar to trade at $1.3163 Friday and currency strategists at BNP
Paribas said that they expected pressure on the currency to persist
ahead of the inflation figure. In a note to clients they said that
the inflation figure would provide "another piece of evidence ahead
of the ECB meeting next week".
Japan's yen, meanwhile, was marginally weaker against a basket
of currencies after data released overnight indicated that
consumers remain thrift-conscious and companies are still grappling
with tepid demand and high inventories.
Back in equities, U.K. retailer Tesco PLC was the clear loser of
the day, tumbling to the bottom of London's main index as well as
the pan-European index after issuing its third profit warning in as
many years.
The company, which is struggling against fierce competition in
its key home market, also said it would slash its interim dividend
and reduce capital expenditure. It said it now expects full-year
trading profit in a range of GBP2.4 billion ($3.98 billion) to
GBP2.5 billion, compared with analysts' expectations of GBP2.7
billion to GBP2.8 billion, according to the company.
"We think Tesco will also look at potentially exiting some
international businesses," Citigroup analyst Pradeep Pratti wrote
in a note.
At the other end of the spectrum, AstraZeneca PLC rose more than
2% to the top of the index on speculation the drug maker might be
planning to resume previously aborted takeover talks with Pfizer
Inc.
In commodities markets Brent crude oil added 0.3% to trade at
$102.79 a barrel. Gold was steady on the day at $1,290.80 having
climbed on Thursday due to investors valuing it as a safe harbor
amid the seemingly intensifying conflict in Eastern Europe.
Write to Josie Cox at josie.cox@wsj.com
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