Europe: Shares rise as tech leads gains on US Fed rate optimism

EUROPEAN shares closed higher on Thursday (Jul 13) led by technology stocks, as hopes grew that the Federal Reserve’s post-pandemic tightening cycle was close to an end due to cooling US inflation.

The pan-European Stoxx 600 index ended 0.6 per cent higher, extending gains to the fifth straight day, its longest winning streak in nearly three months.

Rate-sensitive technology stocks were the top gainers on Stoxx 600, jumping 1.7 per cent, with IT provider Softcat advancing 5.3 per cent after Citi raised it to “buy”.

Also supporting Stoxx 600 were miners rising 1.7 per cent, as commodity prices won support from a weaker dollar.

A faster-than-expected slowdown in US inflation reinforced bets that the Fed could end its rate hikes soon after July.

Falling eurozone government bond yields also helped stocks on Thursday as investors cheered prospects of peak interest rates, though they are still expecting the Fed to deliver a 25-basis point (bps) hike later this month.

“(Overall), the data didn’t have the effect it should have had on the market this morning as investors are mostly focused on central banks’ monetary policies,” said Pierre Veyret, technical analyst at ActivTrades.

Separately, data from the US also showed initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 237,000 for the week ended Jul 8, but overall the labour market remains tight.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, says the labour data adds credence to the theory that the rate of inflation can keep coming down even if the labour market remains strong.

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

“The implication for investors is that buying stocks and bonds is the best course of action, unlike last year when both asset classes dropped in unison.”

London’s FTSE 100 also edged 0.3 per cent higher after a muted start. Britain’s economy shrank less than expected in May, suggesting a widely forecast recession was not already underway.

Among individual stocks, Britain’s largest homebuilder Barratt Developments dropped 1.6 per cent after the company warned it would build far fewer homes this fiscal year.

Shares of Swatch rose 6.9 per cent after the watchmaker reported record growth in the first half of the year. REUTERS