European markets: Russia-Ukraine, inflation fears take over

LONDON — European markets edged higher on Friday as global investors took stock of soaring US inflation and a hawkish surprise from the European Central Bank while continuing to watch developments in Ukraine.

The pan-European Stoxx 600 added 1% late in the evening, with travel and entertainment stocks gaining 3.5%, leading gains as most sectors and major exchanges moved into positive territory.

US consumer price inflation was 7.9% year on year in February, the highest level since January 1982, as food and energy prices skyrocketed.

The Russian invasion of Ukraine and the subsequent flurry of Western economic sanctions against Moscow exacerbated price pressures that were already giving central bank policymakers headaches. The huge inflationary footprint has bolstered expectations for more aggressive interest rate hikes.

The ECB on Thursday announced it would end its bond buying program in the third quarter of 2022, if economic data justifies it, earlier than previously planned. President Christine Lagarde said the war would have “a significant impact on economic activity and inflation.”

Market sentiment has been captivated by developments in Ukraine since Russia launched its offensive on February 24th. Talks between Russian and Ukrainian diplomats in Turkey have stalled with no progress on a ceasefire or an evacuation passage for civilians trying to escape the besieged city. Mariupol.

Asia-Pacific stocks fell across the board on Friday, with Japan’s Nikkei 225 falling 2%, resulting in losses.

US stock futures edged slightly ahead of Friday’s Wall Street session as the Dow Jones Industrial Average heads into its fifth consecutive losing week.

A slew of economic data was released Friday from across Europe, including German inflation data for February and UK gross domestic product, construction, manufacturing and industrial production data for January.

The UK economy rebounded stronger-than-expected in January after a slowdown caused by Covid at the end of 2021. The Office for National Statistics said GDP rose 0.8% m/m after declining 0.2% in December, well above expectations for 0.2% growth, according to a Reuters poll of economists.

Inflation in Germany accelerated in February, with harmonized consumer prices up 5.5% year on year.

In terms of individual share price performance, Italian aerospace and defense company Leonardo rose more than 11% to top the Stoxx 600 after posting strong fourth-quarter results and a promising outlook for the future.

At the bottom of the index, German grocery delivery company Delivery Hero fell 5%.

Subscribe to CNBC PRO for exclusive insights and analysis, plus live coverage of business days from around the world.