Stocks in Europe rose on Wednesday, as investors awaited key U.S. inflation data that could determine whether the Federal Reserve could end its rate hikes soon.
The pan-European STOXX 600 index was up 0.7% by 8:33 GMT, extending gains to the fourth straight session.
The U.S. data, scheduled to be released at 12:30 GMT, is expected to show the consumer price (CPI) index moderated to 3.1% year-on-year in June after May’s 4% rise, while core inflation is also expected to slow on a yearly basis.
While the reading is unlikely to affect expectations of a 25-basis point rate increase by the Fed in July, it could spur hopes that the U.S. central bank could end its monetary tightening soon after that.
“Softer CPI numbers could be enough for the Fed to pause rather than continuing to hike through the year,” said Stuart Cole, chief macro economist at Equiti Capital. “Strong numbers could be enough to see everything reversed and stocks under pressure again.”
The European Central Bank is also expected to raise interest rates in July, but its tightening cycle is expected to be more gradual than the Fed’s.
In other news, shares of British banks rose after the Bank of England said Britain’s eight largest lenders showed no capital inadequacies.
“If UK banks were adequately capitalised, that’s probably true of most big European banks,” Cole said.
Gains in the lenders pushed UK’s FTSE 100 index up 0.8%, while the European banks index rose 0.9%.
Europe’s technology sector was the biggest gainer, up 1.7% as semiconductor firms, including Aixtron, ASM International and Infineon, rose between 3% and 4% after Jefferies raised price targets on the stocks.
At the bottom of the STOXX 600 index, Air France-KLM shares fell 4.3% after Deutsche Bank cut the stock to “hold” from “buy.”
Italian Nexi dropped 1.4% after Banco BPM said it would negotiate a payments deal with another bidder. Shares of Banco BPM advanced 1.3%.
Thales rose 2.1% after the French defence group said it had initiated talks to buy supplier Cobham Aerospace Communications for $1.1 billion.
On the euro zone economic data front, Spanish national consumer prices rose 1.9% in the 12 months through June, down from a 3.2% rise in the period through May, a final reading showed.
The data showed that inflation in Spain is still running above the ECB’s target of 2%, but it is starting to come down. This is likely to be welcomed by the ECB, which is under pressure to raise interest rates in order to combat inflation.
However, the ECB is likely to be cautious about raising rates too quickly, as it does not want to risk tipping the euro zone economy into recession.
Overall, the outlook for European stocks is positive, as investors are optimistic that inflation will start to cool in the coming months. However, there are still some risks to the outlook, such as the ongoing war in Ukraine and the potential for a global recession.
Here are some additional details about the U.S. inflation data:
Here are some additional thoughts on the implications of the U.S. inflation data:
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