London: European shares fell on Friday, led lower by financial stocks, on concerns that the US Federal Reserve’s action to pump another $1 trillion into the financial system could stoke inflation in the long term.
At 1002 GMT (3:32pm), the FTSEurofirst 300 index of top European shares was 1.2% lower at 706.84 points after rising 0.6% in the previous session. It has fallen 15% so far this year after plunging 45% in 2008.
Banks were the top losers in Europe, with Barclays down 4.8%, Societe Generale falling 2.5%, Standard Chartered down 4.6% and Credit Agricole falling 2.2%.
“People have some concerns about the potential inflationary effects of what the Federal Reserve has done. If everything is implemented, then the balance sheet of the Federal Reserve will have gone up by about $3,000 billion,” said Luc Van Hecka, chief economist at KBC Securities.
“That’s a lot of money and it’s not unusual that people tend to see this as a threat to price stability somewhere in the future.”
The Federal Reserve said this week that it would buy $300 billion of long-dated Treasuries over the next six months, its first large-scale purchases of government debt since the early 1960s, while also boosting buying of mortgage-backed securities and agency debt in its bid to rescue the economy.
HSBC fell 4.9% as the stock traded ex-rights. HSBC investors backed its record £12.9 billion rights issue on Thursday, and trading the nil-paid shares allows investors to sell their rights to new shares.
“Whilst the positive trading sessions have been welcomed, it is clear to everybody that this is still a market fraught with volatility,” said Chris Hossain, senior sales manager at ODL Securities.
Across Europe, the FTSE 100 index, Germany’s DAX and France’s CAC 40 were down 0.4-1.3%.
Fresh data raised concerns about the state of the global economy. Germany’s economic contraction likely intensified in the first quarter of this year, its finance ministry said in its March monthly report.
The International Monetary Fund warned the world economy could shrink as much as 1% this year, in its first contraction since World War II. It said more swift action to purge banks of toxic assets was necessary to make a gradual recovery next year possible.
EU leaders are likely to agree to contribute at least $75 billion to the IMF to boost its firepower in the face of the worst financial crisis since the 1930s.
“This looks like a good opportunity to start getting into the market again and this conviction is slowly gaining ground, but people are not in a hurry because they have noticed over the past year and a half that sometimes you get these relief rallies only to fizzle out again,” said Hecka of KBC Securities.
Automakers were under pressure as demand for cars continued to be hit. BMW, Daimler AG, Porsche, Volkswagen AG, Peugeot, Fiat were down 1.1-4.5%.
But miners were generally higher, tracking firmer metals prices. Anglo American, Antofagasta and Eurasian Natural Resources rose between 2-3.5%.
Bayer shares jumped 7% following a green light for its key new drug Xarelto from a US panel.
German industrial conglomerate ThyssenKrupp plans to cut more than 3,000 jobs or about 1.5% of its total staff amid a slump in demand, the Financial Times reported on Friday. Its shares were down 0.6%.