Europe: Shares hit over one-week highs on US CPI relief

EUROPEAN shares climbed on Tuesday after softer-than-expected US inflation data spurred bets that the Federal Reserve would scale back the size of its interest rate hikes in the world’s largest economy. The region-wide Stoxx 600 was up 1.3 per cent, tracking sharp gains in global markets after the US Labor Department’s report showed consumer prices rose 7.1 per cent year-on-year last month - the smallest advance since December 2021. The latest inflation report marks the last important data point before the Federal Reserve delivers its interest rate decision on Wednesday. The reading follows a smaller-than-expected rise in consumer prices in October. Traders’ bets of a dialled down 50 basis point rate hike from the Fed on Wednesday jumped to 97 per cent after the data from 91 per cent before the report came out, while they saw a 78.3 per cent chance of the European Central Bank raising rates by 50 bps. “Today’s movement in Europe is mostly boosted by global market optimism, which has been triggered by the US inflation data,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “This will feed into a weaker US dollar and a stronger euro and sterling that should help tame inflation in Europe as well.”

Final data confirmed Germany’s consumer prices, harmonised to compare with other European countries, were 11.3 per cent higher year-on-year in November. Prices had risen 11.6 per cent in October. Germany’s DAX rose 1.3 per cent. Meanwhile, European Union member countries are meeting in Brussels to attempt to approve a price cap proposed by the European Commission last month to shield consumers from soaring energy costs. In UK, the Bank of England warned about “significant pressure” on households and businesses due to higher inflation and borrowing costs, but said they were more resilient than before the global financial crisis. All the Stoxx 600 sectors were trading higher, with rate-sensitive tech stocks up 3.3 per cent and in the lead. Banks rose 1.4 per cent to near one-week highs. Leveraged European stocks such as Delivery Hero, Aroundtown, LEG Immobilien and Grifols, which analysts see as potentially facing credit stress from rising interest rates, jumped between 5 per cent and 9.3 per cent. Shares of British American Tobacco slipped 1.7 per cent after the US Supreme Court on Monday cleared the way for California to enforce a voter-approved ban on flavoured tobacco products. Wacker Chemie rose 5.3 per cent after UBS upgraded the chemical products maker’s stock to “buy” from “neutral.”

Lufthansa rose 3.7 per cent after raising its 2022 earnings forecast. REUTERS