Europe midday: Stoxx up on rate cut hopes; Big US banks in focus

12th Jul 2024 11:12

(Sharecast News) - European shares were higher on Friday, with sentiment buoyed by an unexpected fall in US inflation that raised hopes of a rate cut in September.

The pan-European Stoxx 600 index was up 0.32% to 521 after the US consumer price index fell by 0.1% in June from the previous month for an annual rate of 3% against expectations of an increase of 0.1% and 3%.

France's CAC 40 outperformed the Stoxx, up 0.7% as leaders of the left-wing New Popular Front are currently discussing potential candidates for prime minister.

"European markets are enjoying a strong end to the week, feeding off a weaker US inflation reading than many had anticipated. While the surprise decline for both core and headline CPI initially helped lift all markets, we soon saw a rotation from big tech to more cyclical stocks," said Scope Markets analyst Joshua Mahony.

"While some will fear the repercussions of a slump in big tech valuations, investors will be encouraged at the prospect of a more broad-based bullish environment for equity markets. Interest rate cuts from the likes of the ECB and the Bank of Canada may have occurred ahead of any Federal Reserve easing, but the willingness to further widen that interest rate differential will be questionable given the potential outflows in capital towards the US."

"With that in mind the recent declines for US core PCE and CPI inflation has helped lift expectations for a September rate cut which in turn bolsters claims of similar action from the other major central banks."

Investors will now eye US producer price index data later today along with major US banks posting quarterly earnings.

In equity news, Sweden's Lifco surged after quarterly earnings pleased investors.

Addtech hit a record high and was up more than 11% after the Swedish technical solutions firm said its outlook was favourable and overall customer activity is stable at a high level.

Ericsson rose after the Swedish telecom equipment maker reported a smaller-than-expected 7% drop in second-quarter sales.

EMS Chemie slipped as the Swiss nylon manufacturer cut annual sales guidance, while Axfood fell to the bottom of the Stoxx as quarterly earnings were hit by costs associated with operational disruptions and restructuring of logistics.

Norwegian Air took off after reporting second-quarter core earnings above market expectations despite slightly lower demand impacting ticket prices, as the budget airline said it improved its cost level and cash flow.

Reporting by Frank Prenesti for Sharecast.com