European Indices fall on US inflation concerns after ISM data

European Indices turned lower on Thursday as better than expected economic data pointed to rising US inflation and therefore a potential hike in interest rates, curbing investor’s appetite for risk somewhat. With US non farm payrolls and unemployment rate also due out tomorrow, investors have used the very strong US services data as an excuse to downsize equity positions in case of a bad reading in tomorrows jobs data.

2011 – The ‘catch 22’ year
2011 is shaping up to be the ‘catch 22’ year whereby central banks are facing the increasingly tough decision of maintaining growth with stimulus but at the same time trying to curb spiralling inflation, most likely with interest rate hikes. It is a really tough situation to manage and as the markets have increasingly shown, investor sensitivities is growing in terms of trying to second guess which side of the coin central bankers decide upon.

Today’s ISM non manufacturing data December, whilst very positive for the sustainability of US economic growth, has given rise to a rather mixed equity market reaction. Some are rallying behind the optimism that global economic recovery remains on track whilst others are less pessimistic fearing interest rate hikes and no further liquidity stimulus from the Fed.

Royal Dutch Shell disappoints
Most of today’s weakness on the FTSE 100 was born out of the poor performance in Royal Dutch Shell, whose shares fell over 3.5% after missing market expectations for their fourth quarter profit. Shareholders have grown used to the firm beating expectations, having done so for much of the last year whilst BP’s oil leak problems have heaped positive sentiment on its rival oil giant. However today’s results have to a degree brought investors back down to earth somewhat with the much publicised problems in oil refinery seemingly continuing. As a result, we have seen traders use today’s disappointment as an opportunity to bank profits after Shell’s share price has risen 19% over the last two months.