European shares drop as euro zone inflation hits record 8.1%

European shares fell on Tuesday as news that euro zone inflation hit a higher-than-expected record 8.1 per cent in May fuelled bets of bigger interest rate increases by the European Central Bank (ECB) to curb soaring consumer prices.

Inflation in the 19 countries sharing the euro accelerated from 7.4 per cent in April and beat market expectations for a reading of 7.7 per cent, with the latest data indicating that it is no longer just soaring energy prices that is pushing up the headline figure.

The pan-European Stoxx 600 index declined by 0.9 per cent.

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The Iseq overall index fell 1.5 per cent to 7,310.06, with travel and food stocks among the main decliners. Ryanair lost 3.6 per cent to €14.27, as oil prices advanced on news that EU leaders had agreed to a phased ban on most Russian oil.

Dalata Hotel Group was also on offer, declining 5.5 per cent to €4.18.

Food companies were also out of sorts, with Glanbia sliding 3.9 per cent and Kerry Group declining 2.4 per cent, as investors fretted about rising raw material prices across the sector.

LONDON

The FTSE 100 was bookended by two companies posting unusually big movements in opposite directions as it managed to eke out its fifth straight session in the green.

The index managed modest growth as the heft of Unilever, its best performer on Tuesday, managed to outweigh a plunge by discount retailer B&M.

By the end of the day the FTSE was up 0.1 per cent, hitting 7,607.66.

Unilever’s big push upwards, with its shares rising 9.4 per cent, was an unmistakable welcome for Nelson Peltz, an activist investor appointed to the consumer giant’s board on Tuesday. Rumours of Mr Peltz taking a stake in the firm have been swirling for months. The stake was confirmed at 1.5 per cent, making his group one of Unilever’s biggest shareholders.

For Shell and BP the 1.6 per cent rise in the price of oil was a boon. Brent crude cost $123.66 per barrel shortly before European markets closed.

B&M shares slid 15 per cent as the business reported an unwelcome dip in sales. Although a slowdown is to be expected as the UK came out of lockdown – B&M was an essential retailer – the latest figures show sales were more than 13 per cent lower in the last eight weeks than a year ago.

EUROPE

While shareholders in euro zone banks would typically welcome signs of rising interest rates, the sector dipped 1.6 per cent as investors worried about the hit to the economy from surging prices.

“This is resulting in market expectations of perhaps [the] ECB acting more quickly,” said Bert Colijn, senior economist, euro zone, at ING. However, he added that ING still expects the central bank to hike rates by 0.25 of a percentage point in both July and September.

Dutch specialty chemicals maker DSM jumped 8.0 per cent on plans to merge with Swiss peer Firmenich. DSM also announced the sale of its engineering materials subsidiary for €3.85 billion to private equity firm Advent International and German chemicals company Lanxess. Lanxess’ shares surged 11.2 per cent.

NEW YORK

US stocks were mixed in early afternoon trading in New York as soaring oil prices and hawkish comments from a US Federal Reserve official spooked investors, with focus on talks between US president Joe Biden and Fed chairman Jerome Powell later in the day.

Fed governor Christopher Waller said on Monday the US central bank should be prepared to raise rates by a half percentage point at every meeting from now on until inflation is decisively curbed. The Dow Jones Industrial Average was lower in early afternoon trading, while the Nasdaq Composite was in positive territory, led by gains in shares of Amazon and Google parent, Alphabet.

US-listed shares of Yamana Gold climbed after South African miner Gold Fields agreed to buy the Canadian miner in a $6.7 billion (€5.3 billion) all-share deal.

Dexcom jumped after the glucose monitoring systems maker denied a report on merger talks with insulin pump maker Insulet.

Additional reporting: Press Association, Reuters