Shares in Ireland and the rest of Europe declined in the latest session, erasing all gains for the week, as worries about the possibility of hawkish-for-longer central banks outweighed optimism around cooling inflation.
The Stoxx 600 Index dropped by over 1% even though data on Thursday had suggested a cooling inflation rate in the US.
But by Friday, a hotter-than-estimated US producer price index reading added to speculation that the US central bank would keep interest rates higher for longer.
Investors fear that the European Central Bank will also keep rates at elevated levels.
In Europe, technology and property firms led declines, while financial services and utilities outperformed.
However, in Ireland, AIB shares lost 2.6% and Bank of Ireland fell by 1.5%, while Permanent TSB declined by almost 2%.
The Irish banks have nonetheless had a remarkable winning streak, as they tapped increased profits from European Central Bank rate rises.
After rising for two straight months, the European stocks benchmark has pulled back in August as investors worry about higher interest rates and a lackluster corporate earnings season.
Outflows from regional stock funds extended for a 22nd straight week, according to a Bank of America.
Still, Sanford C Bernstein strategist Sarah McCarthy said the valuation gap with US equities “is now more extreme than ever”, keeping European stocks more attractive.
In a research note, she reiterated an overweight recommendation in Europe versus the US.
Meanwhile, data in Britain showed the economy grew more strongly than expected in the second quarter after activity roared back in June following an extra bank holiday for king Charles III’s coronation.
Neil Birrell, chief investment officer at Premier Miton Investors, said the figures would keep the Bank of England walking “a tightrope” in the next few months.
- Bloomberg. Additional reporting
