Europe: Shares jump as cooling US inflation boosts rate pause bets

EUROPEAN shares jumped on Wednesday (Jul 12) as further evidence of easing consumer inflation in the United States boosted hopes that the Federal Reserve could end its market-punishing interest rate hikes soon, with technology and miners leading gains.

The pan-European Stoxx 600 index closed 1.5 per cent higher, extending gains to the fourth straight day.

US consumer prices advanced 3.0 per cent in June – their smallest year-on-year increase since March 2021 – after 4 per cent growth in May.

Core inflation, which excludes volatile food and energy prices, also grew 4.8 per cent last month, moderating from a 5.3 per cent increase in May.

While traders still expect the Fed to hike interest rates by 25 basis points at its meeting later in July, analysts said the US central bank could be close to ending its tightening given the downward trend in inflation.

“Regardless of whether the FOMC (the US Central Bank’s interest-rate setting body) raises interest rates later this week or not, the Fed is likely coming to the end of its interest rate hiking cycle,” said Daniel Casali, chief investment strategist at Evelyn Partners.

UK’s Virgin Money climbed 11.5 per cent, while shares of Lloyds, Barclays and HSBC rose about 3 per cent each after the Bank of England said Britain’s eight largest lenders showed no capital inadequacies.

Gains in the lenders lifted UK’s FTSE 100 index by 1.8 per cent, leading gains among European peers and pushing the European banks index up 1.9 per cent.

Miners were the biggest sectoral gainers, up 3.8 per cent as metal prices climbed on a weaker dollar.

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Europe: Shares rise, Irish stocks lead

Boosting the technology sub-index, semiconductor firms, including Aixtron, ASM International and Infineon, rose between 4 per cent and 6.5 per cent after Jefferies raised price targets on the stocks.

European shares have performed better than UK stocks so far this year, amid economic resilience and signs of cooling inflation in the eurozone, with focus now shifting to the upcoming earnings season.

“Increasingly, global markets look priced for Goldilocks: no recession this year, a strong rebound in earnings over the coming 18 months and a quick normalisation of inflation,” said Vincent Chaigneau, head of research at Generali Investments.

Air France-KLM shares fell 3.8 per cent after Deutsche Bank cut the stock to “hold” from “buy”.

Thales rose 3.0 per cent after the French defence group said it had initiated talks to buy supplier Cobham Aerospace Communications for US$1.1 billion.

Data showed Spanish national consumer prices rose 1.9 per cent in the 12 months through June, down from a 3.2 per cent rise in the period through May. REUTERS