Eurozone stocks sag on strong euro as region exits recession

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Eurozone equities sagged Tuesday, weighed down by the strong euro as investors digested bright economic news, while London hit another record peak on earnings-driven optimism.

Frankfurt and Paris stocks retreated but the euro jumped against the dollar, as figures showed the eurozone economy emerged from recession in the first quarter with inflation under control.

London meanwhile zoomed to yet another record peak at 8,199.95 points, with HSBC soaring more than four percent on a bumper stock buyback despite sliding first-quarter profits and the exit of its chief executive.

Eurozone gross domestic product grew by a stronger-than-expected 0.3 percent in the first three months of 2024 compared to the prior quarter, having slid into a shallow recession in the second half of last year, official data showed. Annual inflation held at 2.4 percent in April from the previous month.

The figures are unlikely to stop the European Central Bank from cutting interest rates in June, according to economists.

The US Federal Reserve is predicted to stand pat on rates after meeting on Wednesday, but its statement and boss Jerome Powell's comments will be pored over for clues about the outlook.

- Euro weighs -

"While the ECB is still expected to cut rates in June, what happens after that remains unclear," City Index analyst Fiona Cincotta told AFP.

"Stronger growth and sticky inflation could mean the ECB keeps rates high for longer, which is lifting the euro.

"However, higher borrowing costs for longer are unfavourable for companies, restricting growth, which is why eurozone bourses are heading lower."

Wall Street opened lower following data showing labour costs for civilian workers rose by a more-than-expected 1.2 percent in the first quarter of this year.

Briefing.com analyst Patrick O'Hare said the figure fuelled "concerns about general price inflation sticking above the Fed's 2 percent target for longer than expected," and thus likely pushing back any cuts in interest rates.

Traders have been lowering their expectations since the start of 2024 for how many reductions the bank will make as inflation continues to hold above target and various indicators show a resilient economy and labour market.

But a forecast-beating series of earnings from top-tier firms in recent weeks, particularly tech titans including Google owner Alphabet and Microsoft, has been a key driver of recent equity market advances, offsetting fading hopes for a US interest rate cut this year.

Asian markets mostly rose Tuesday following overnight advances on Wall Street. Tokyo stocks piled on more than one percent as it played catch-up with Asia's gains on Monday, which was a Japanese holiday.

The yen weakened slightly but held much of the previous day's surge that observers speculate came on the back of an intervention by authorities after it hit a fresh 34-year low of 160.17 yen per dollar.

Traders are on guard for further yen volatility after the Bank of Japan decided against shifting further from its ultra-loose monetary policy last week and gave little idea about when it would.

- Key figures around 1330 GMT -