By Josie Cox
European shares rose tentatively Friday, as investors weighed
expectation-meeting euro-zone inflation data against disappointing
German retail figures while keeping a sharp eye on flaring tensions
in eastern Europe.
Following a sharp sell-off Thursday, the Stoxx Europe 600 ended
the last trading session of the month up 0.3%, while France's CAC
40 and the U.K.'s FTSE added 0.3% and 0.2% respectively.
Germany's DAX, meanwhile, closed largely unchanged after figures
showed retailers in July posted their biggest monthly fall in sales
since January 2012. On Thursday the DAX, packed full of exporters
which are highly sensitive to tensions between Moscow and the West,
lost 1.1%.
"Clearly consumers as well as businesses in Germany are
hurting," Derek Halpenny, European head of currency research at
Bank of Tokyo-Mitsubishi UFJ said. He did imply however, that
expectations may already have been revised lower after GfK consumer
confidence data on Wednesday revealed the largest drop in German
economic expectations since the 1980s.
Elsewhere, figures Friday showed that consumer prices in the 18
countries using the euro rose by just 0.3% year-over-year in
August, representing the smallest rise since late 2009. Strategists
said that the market's resilience was likely down to the figure
meeting expectations. Many said however, that it does heap pressure
on the European Central Bank to take more aggressive steps to fuel
growth in the stagnant economy.
Late last week ECB President Mario Draghi hinted that the bank
could be preparing further stimulus, even raising the prospect of
quantitative easing, which sent the euro to an 11-month low against
the dollar. On Friday, the bloc's currency lost 0.2% to trade at
$1.315 against the greenback.
Economists have since concluded, however, that the ECB is likely
to want to gauge the impact of its June measures and assess the
take up of the targeted longer-term refinancing operation before
taking further action.
"Anybody expecting the dramatic announcement of large-scale
US-style quantitative easing next Thursday is highly likely to be
disappointed," said Stefan Rondorf, strategist at Allianz Global
Investors. "The ECB has not yet implemented the easing measures it
announced in June and any more action would make it look like the
Central Bank was panicking," he added.
Beyond the euro zone, investors' attention was firmly drawn to
Russia on Friday, where the ruble fell to an all-time low against
the U.S. dollar after Kiev said that Russian troops had entered
eastern regions of Ukraine in support of pro-Russian rebels.
Moscow, meanwhile, denied the claim that Russia now has a military
presence in the neighboring country.
Soon after midnight on Friday, Russia's President Vladimir Putin
issued a statement, urging rebels to cease fire and let Ukrainian
troops get out of the blockade. Earlier this week, Mr. Putin told
his Ukrainian counterpart Petro Poroshenko that it was "Ukraine's
own internal business" to negotiate a truce with rebels.
Having underperformed most other currencies all day, the ruble
eased to 37.18 versus the dollar, losing 1.2% in late European
trade. Its previous record low against the greenback, was 37 rubles
per dollar, which it hit on the first trading day of March after
the West had threatened to punish Moscow for its annexation of
Crimea.
"The latest developments suggest a meaningful escalation of the
Russia-Ukraine conflict," Barclays economists wrote in a note.
Mr. Halpenny at Mitsubishi agreed that this would likely "have
considerable consequences for the region and key parts of
Europe."
Moscow's Micex ended the week 1.6% lower while the dollar-traded
RTS index waned 2.4%.
U.S. markets, however, which also declined in the wake of rising
tensions Thursday, shrugged off the conflict Friday with the
S&P 500 rising 0.3% in late European trade, bolstered by strong
data.
The Chicago Business Barometer, commonly called the Chicago PMI,
rose 11.7 points in August to 64.3, regaining all the ground lost
in July, when the index dropped to 52.6 for its largest point
decline since October 2008.
The Thomson-Reuters/University of Michigan final-August
sentiment index, meanwhile, increased to 82.5 from a preliminary
reading of 79.2. Economists surveyed by The Wall Street Journal had
anticipated a reading of 80.2.
Back in Europe, U.K. retailer Tesco PLC was the clear loser of
the day, tumbling to the bottom of London's main index as well as
the pan-European index, and pulling other retailers down with it,
after issuing its third profit warning in as many years. The
company, which is struggling against fierce competition in its key
home market, also said it would slash its interim dividend and
reduce capital expenditure.
"We think Tesco will also look at potentially exiting some
international businesses," Citigroup analyst Pradeep Pratti wrote
in a note.
At the other end of the spectrum, AstraZeneca PLC rose almost 2%
on speculation the drug maker might be planning to resume
previously aborted takeover talks with Pfizer Inc.
In commodities markets Brent crude oil added 0.4% to trade at
$102.91 a barrel. Gold lost 0.2% to $1,288 having climbed on
Thursday due to investors valuing it as a safe harbor.
Andrey Ostroukh in Moscow and Chiara Albanese in London
contributed to this article
Write to Josie Cox at josie.cox@wsj.com