European Stocks Set For Worst Week Since February On Inflation Anxiety

European stocks edged higher on Friday, but were on course for their biggest weekly drop since February-end as investors maintained a cautious stance amid US inflation scare.

The Euro STOXX 50 Index is up by + 0.5%. Commodity companies are down, insurance companies and banks are up. the FTSE MIB of Milan is up by + 0.4%. The Dax in Frankfurt is gaining + 0.3%.

The pan-European STOXX 600 index rose 0.3%, with banks and retail stocks leading the gains.

The benchmark was on course for a 1.4% weekly drop as a rally in commodity prices and signs of quickening US inflation raised fears about an earlier-than-expected interest rate hike by the US Federal Reserve.

Investors will be watching US retail sales and industrial production data to gauge whether the inflationary pressures are short-lived, as seen by Fed policymakers.

"Either the US inflation uptick is temporary, or the Fed is dangerously complacent. Either way, we're going to see tolerance of higher inflation tested further in the months ahead," Kit Juckes, a strategist at Societe Generale wrote in a note.

Bank of America's weekly fund flow statistics showed that investors pulled out of tech equity funds and loaded up on inflation protection in the week ended May 12. In the video below we talk about a US high dividend stock that may interesting to look at in this environment.

While price rises are less of a problem in the eurozone, investors will be watching the European Central Bank's minutes of its latest policy meeting, to be released later in the day, to get clues on the tapering of its bond purchase scheme.

Among individual stocks, Italy's Banco Bpm (MI:BAMI) rose 2.4% after Deutsche Bank upgraded the stock to "buy", saying the lender's "speculative appeal" could increase in the next few months.

French food group Danone (PA:DANO) slipped 2% after Goldman Sachs downgraded the stock to "sell", citing weaker demographic trends, particularly in China, will weigh on its specialised nutrition business. 

Atlantia (MI:ATL) slipped 1.8% after the Italian infrastructure group reported a net loss in the first quarter and confirmed it would decide on the sale of its stake in motorway unit Autostrade by June 11.