European shares continued to rise on Thursday, buoyed by positive earnings updates and unexpectedly soft US inflation data. These developments bolstered expectations for a rate cut from the US Federal Reserve in September. The Europe-wide Stoxx 600 index closed 0.6 per cent higher, slightly below the two-week high achieved earlier in the session.
US consumer prices fell in June for the first time in four years due to lower gasoline costs and moderating rents. This confirmed the disinflation trend and brought the Fed closer to a potential interest rate cut in September. The biggest contributors to the benchmark index were real estate shares and utilities, while the Stoxx 200 small cap index outperformed large caps with a 1.1 per cent increase.
Stuart Cole, chief economist at Equiti Capital, noted that the data has raised expectations for the Fed to begin cutting rates in September. He added that if the Fed reduces rates, it will ease the path for the European Central Bank (ECB) to follow suit. European markets are now anticipating a faster pace of monetary easing in Europe, which is beneficial for stocks.
Money markets have now priced in an over 85 per cent likelihood of a US rate cut in September. In the region, a report revealed that German inflation eased to 2.5 per cent in June, which confirmed preliminary data and opened the possibility for further ECB rate cuts. According to a Reuters poll, the ECB is expected to cut its deposit rate twice more this year, in September and December. Consequently, Germany’s DAX index rose by 0.7 per cent.
French stocks also climbed 0.7 per cent, driven by Vivendi’s 5.5 per cent surge after reports indicated the media group is considering a spin-off and potential London listing for its Canal+ TV unit. British water company Pennon saw a significant jump of 9.6 per cent after announcing Laura Flowerdew, a company insider, as its new CFO.
Norway’s largest bank, DNB, gained 5.8 per cent following higher-than-expected second-quarter earnings, which were supported by a stable economy. Danish medical equipment maker Ambu’s shares soared 4.7 per cent to their highest level since February 2022 after raising its full-year outlook and beating consensus with its preliminary third-quarter numbers.
However, Barry Callebaut, the Swiss chocolate maker, faced a steep decline of nearly 12 per cent. The company reported a drop in quarterly sales volumes and cited increased costs due to rising cocoa prices, causing it to fall to the bottom of the Stoxx 600.
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