The European Commission upped regional inflation forecasts for 2022-2023 due to high energy prices

London (AFP) - European stocks mostly ended on a high on Friday as slower US inflation and a relaxing of Covid restrictions in China boosted investor sentiment despite recession prospects.

Frankfurt and Paris managed to advance by more than half a percent by at the end of trading, although gains were capped as the European Union warned the eurozone was set to fall into recession this winter.

The moves followed soaring gains overnight in Asia and on Wall Street and came despite the European Commission hiking regional inflation forecasts for 2022 and 2023 on the back of high energy prices.

In the United States, annual inflation came in at a lower-than-expected 7.7 percent in October, down from 8.2 percent in September, dimming expectations of more aggressive interest-rate hikes from the Federal Reserve.

Oil prices were also up as China relaxed some hardline Covid-19 restrictions.

“This has been sufficient to prevent more than modest losses on some indices, with the week ending in a far more optimistic tone,” noted Chris Beauchamp, chief market analyst at online trading platform IG.

“Confident for now that the Fed can walk back some of its most hawkish rhetoric, stocks look well set for additional gains into the second half of November.”

The dollar slumped against rival currencies following the inflation data release, at one point reaching a three-month low against the euro and weakening against the yen and pound.

- ‘Bordering on silly’ -

Daniel Berkowitz, senior investment officer for Prudent Management Associates, struck a note of caution regarding the slower inflation.

“While it always feels good to see markets rally, we think this… is bordering on silly,” he said.

“The market is reacting as if this is the continuance of a multiple-month, downward trend in inflation, and it is not.”

Michael Hewson, chief market analyst at CMC Markets UK, added: “Markets appear to be getting slightly ahead of themselves given that the quarantine time in China is still quite long, and that Covid infection rates are rising and not decreasing.”

But London’s benchmark FTSE 100 index ended in the red after official data indicated that the UK economy was probably at the start of a prolonged recession.

“The FTSE’s struggles suggest UK investors are more worried about deteriorating domestic, eurozone and global economies than (they) are hopeful about the US and other central banks easing rate hikes,” noted Fawad Razaqzada, market analyst at City Index trading group.

In the UK, inflation is seen rising further. Currently at 10.1 percent, the Bank of England is forecasting it will hit around 11 percent this year before starting to cool.

- Key figures around 1630 GMT -

London - FTSE 100: DOWN 0.8 percent at 7,318.04 points (close)

Frankfurt - DAX: UP 0.6 percent at 14,224.86 (close)

Paris - CAC 40: UP 0.6 percent at 6,594.62 (close)

EURO STOXX 50: UP 0.6 percent at 3,868.50

New York - Dow: DOWN 0.8 percent at 33,432.14

Tokyo - Nikkei 225: UP 3.0 percent at 28,263.57 (close)

Hong Kong - Hang Seng Index: UP 7.7 percent at 17,325.66 (close)

Shanghai - Composite: UP 1.7 percent at 3,087.29 (close)

Pound/dollar: UP at $1.1770 from $1.1642 on Thursday

Euro/dollar: UP at $1.0328 from $1.0131

Dollar/yen: DOWN at 139.06 yen from 143.15 yen

Euro/pound: UP at 87.72 pence from 87.20 pence

Brent North Sea crude: UP 2.5 percent at $96.04 per barrel

West Texas Intermediate: UP 3.0 percent at $89.06 per barrel