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Europe Markets: Europe stocks struggle, as inflation hits a decade high and miners hit by downgrades at UBS

European stocks struggled Friday, with the key gauge barely hanging onto a weekly gain as data revealed surging inflation for the euro area, and miners were pressured amid a dour outlook for iron ore by UBS.

The Stoxx Europe 600 index
SXXP,
-0.32%

was flat at 466.36, and was looking at no change on the week. The German DAX
DAX,
-0.59%

was down 0.1%, the French CAC 40
PX1,
-0.19%

rose about 0.3%, while the FTSE 100 index
UKX,
-0.39%

was flat. The euro
EURUSD,
-0.20%

gained 0.2% to $1.1784.

Fresh data showed EU annual inflation climbed to 3% in August, from 2.2% in July — confirming Eurostat’s initial estimate — with nearly half due to rising energy prices, followed by costs for non-energy industrial goods, food, alcohol and tobacco and services. Inflation is now at the highest rate in 10 years.

“Lately, soaring natural gas and electricity prices have further fueled ‘stagflation’
fears in the market,” said Aila Muhr, senior euro area analyst at Dankse Bank, in a note to clients. And energy inflation should stay high for the rest of this year, as rising gas and electricity prices counter falling inflation rates for transport fuels, the analyst said.

Prices for natural gas in Europe and the U.K. have been soaring amid slowing supplies from Russia, and lack of wind and rain to generate renewable sources. That has triggered costly bills for consumers that governments have been scrambling to control.

The European Central Bank expects its 2% inflation target will be reached by 2025, which indicates interest rate increases could come in just over two years, the FT reported, citing unpublished internal models. The paper also said chief economist Philip Lane discussed the likelihood of a rate rise by 2023 in a call with German banks this week. The ECB rebuffed the report in a comment to the FT.

Mining stocks were under pressure, with Anglo American
AAL,
-5.84%

shares down 4%, after UBS cut the miner to sell, along with Vale
VALE,
-4.25%

and Fortescue Metals Group
FMG,
-11.48%
,
which slumped 11% in Australian trading,. UBS also kept a sell rating on Rio Tinto
RIO,
-3.72%

RIO,
-3.99%

and a neutral rating on BHP
BHP,
-4.80%

BHP,
-4.14%
.

UBS predicted iron ore prices will fall below $100/t by year-end, amid a weaker China steel production and a weak property market. The industrial metal has been under intense pressure since August.

Elsewhere, deal news saw shares of German pharmaceutical group Biotest
BIO,
+22.79%

climbing 8% after Spanish pharmaceutical company Grifols SA said it would pay €1.1 billion for the 90% stake held by China’s Tiancheng Pharmaceutical, in a deal valuing Biotest at €1.6 billion.

Travel and airline stocks continued to rise on Friday, with shares of International Consolidated Airlines
IAG,
+5.85%

topping the Stoxx 600 gainers list with a nearly 6% gain, with Deutsche Lufthansa
LHA,
+3.66%

rising 3% and Aeroports de Paris
ADP,
+2.75%

rising nearly 3%.

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