Europe inflation ticks up to 2.1%, rattling the stock market

European markets slipped hard on Tuesday after new numbers from Eurostat showed inflation across the euro zone climbed to 2.1% in August, putting pressure on investors already watching rate cuts and slowing growth.

That’s above the European Central Bank’s 2% target, and the miss didn’t go unnoticed. According to data from CNBC, the day began with the British pound down 0.9% against the dollar by 9:38 a.m. in London. 

Concerns over the U.K.’s public finances pushed the Sterling into the red early, dragging risk sentiment down with it. Traders were already nervous over tariff headlines and shaky global markets.

Markets in Europe lose ground as inflation rattles traders

Indexes across Europe opened weaker and stayed red most of the day. The FTSE 100 fell 0.4%. Germany’s DAX slid 0.88%. The FTSE MIB in Italy dropped 0.46%. France’s CAC 40 barely moved, trading flat. And the broader Stoxx Europe 600 index shed 0.6%.

The inflation readout caught many off guard. Most economists polled by Reuters had expected the number to stay unchanged at 2%. But the jump, though small, pushed the euro zone slightly out of the ECB’s comfort range.

Core inflation, which strips out volatile items like food and energy, stayed flat at 2.3%. The services sector, which had been pushing inflation higher earlier in the year, dipped slightly from 3.2% in July to 3.1% in August. That wasn’t enough to calm fears.

The mood turned more cautious after comments from Gediminas Simkus, a Governing Council member of the European Central Bank. Speaking to Econostream Media, Simkus said, “I would not be surprised if Santa Claus comes with scissors.” He hinted that a rate cut could land in December, adding that a cut might even be discussed in October if the data worsens.

Simkus then added that:- “It’s more true than not that another reduction is coming.” He also warned that there are “many forces now at work that point to lower future inflation,” but risks to both inflation and the broader economy are “still tilted to the downside.”

Stocks across banking, healthcare, and private equity react to the chaos

Corporate names didn’t escape the selloff. The biggest gainer on the Stoxx 600 was Partners Group, a Swiss private markets investment firm. The stock jumped after it reported 578 million Swiss francs ($720 million) in first-half profit, beating the 570 million expected by analysts. The company said the bump came from higher performance fees.

On the flip side, Fresenius Medical Care took a heavy hit. The German healthcare company dropped 5.5% after UBS analysts downgraded the stock to ‘Sell.’ That sent it straight to the bottom of the Stoxx 600 leaderboard, erasing previous gains.

The banking sector had its own drama. In Italy, Monte dei Paschi, backed by the state, increased its takeover bid for Mediobanca. The revised offer added a cash component of €0.90 per share ($1.05), on top of the original deal that offered 2.533 Monte shares for each Mediobanca share.

That new mix gave the offer an 11.4% premium based on Mediobanca’s closing price on January 23. But Mediobanca has been pushing back against the deal since the start of the year and has refused to accept the all-stock proposal. The updated offer remains on the table until September 8.

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