Europe close: Shares slip on Powell inflation remarks; WoS tanks

(Sharecast News) - European shares closed marginally lower on Friday after US Federal Reserve chair Jerome Powell told the Jackson Hole symposium in Wyoming rates could rise again to quell inflation he thought was "still too high". The pan-regional Stoxx 600 index finished just 0.04% lower at 451.39, with major bourses largely higher. Wall Street shares were also in the green at the open.

"Fed Chair Jerome Powell's keynote speech at the Jackson Hole symposium was a bit of a damp squib as he tried to please both doves and hawks," said IG analyst Axel Rudolph.

"After some initial volatility during the speech equity indices declined again but European indices still managed to end the week in positive territory. This despite Germany's economy stagnating in Q2 after its recession and German IFO business sentiment hitting a 10-month low while French unemployment rises the most in two years."

European Central Bank President Christine Lagarde was set to address the symposium later on Friday, also under pressure to pause rate hikes after a raft of weak PMI data and stagnant growth in major economies such as France and Germany.

"The latest PMIs confirmed the eurozone economy is heading towards a period of sluggish growth, which now makes any hawkish statement a harder sell," said ING analysts.

"At the same time, Lagarde and her ECB colleagues are probably aware that the window for one last hike to curb the still non-negligible service inflation is closing fast. In other words, if the ECB pauses in September, it may well not get a chance to hike any more given the deteriorating economic outlook."

In economic news, Germany's economy flatlined in the second quarter of 2023, according to new data released on Friday which was unrevised from preliminary estimates.

The country's statistics office confirmed earlier data that showed that gross domestic product failed to expand between April and June, a slight improvement after two consecutive quarters of contraction - a technical recession. The data was in line with economists' predictions.

GDP declined by 0.1% and 0.4% in the first quarter of 2023 and fourth quarter of 2022, respectively.

"The question remains whether technically speaking a stagnation after two quarters of contraction is actually the end of a technical recession or a prolongation," said ING's global head of macro, Carsten Brzeski.

On a year-on-year basis, GDP declined by 0.2% after a 0.5% contraction in the first quarter.

Adding to the misery was survey data showing German business sentiment deteriorated further in August, according to the Ifo Institute. Its business climate index fell to 85.7 from a revised 87.4 in July, coming in below consensus expectations of 86.7.

The current assessment index declined to 89.0 from 91.4, while the expectations gauge dipped by one point to 82.6.

Shares in Watches of Switzerland Group plunged by more than a quarter on Friday morning, heading for the company's worst day ever, after luxury watchmaker Rolex announced a deal to buy watch retailer Bucherer.

In a statement, Watches of Switzerland insisted that the acquisition was solely about succession planning for Rolex - which is breaking with its modus operandi of acting solely as a manufacturer - and did not represent a "strategic move" into the retail market.

Reporting by Frank Prenesti for Sharecast.com