European shares hit one-week highs on US inflation data

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 labour 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.

DUBLIN

Dublin’s Iseq rose in tandem with other European bourses, with the Irish-listed banks boosted by the better news on inflation from the US. AIB and Bank of Ireland rose by 0.7 per cent and 2 per cent, while PTSB was up by 1.7 per cent.

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The better outlook in the US also encouraged building materials group Kingspan, which has significant business there. The company’s shares were up 2.4 per cent at €54.30.

Packaging giant Smurfit Kappa also rose by nearly 3 per cent by €35.97, while Ryanair, in contrast to rivals, fell by 1 per cent to €13.03.

Food groups Kerry and Glanbia traded flat, while hotel firm Dalata traded down 1 per cent at €3.15.

EUROPE

All the Stoxx 600 sectors were trading higher, with rate-sensitive tech stocks up 3.3 per cent and in the lead, while 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.

LONDON

The FTSE rebounded as global traders cheered positive US inflation data, closing the day up 56.92 points, or 0.76 per cent, at 7,502.89.

Capita saw shares shoot higher as revenues at the outsourcing firm were lifted by its contract with the British royal navy, with debts slimmed as it shed an area of the business. The firm reported 2 per cent adjusted group revenue growth in the 11 months to November 30th in its pre-close trading update to investors. Shares climbed 2.02p higher to 25p at the close as a result.

Elsewhere, Rolls-Royce dipped in value after the engineering giant was placed on negative catalyst watch by JP Morgan, ahead of the start of new chief executive Tufan Erginbilgic.

NEW YORK

Wall Street stocks jumped – only to pull back by early afternoon – while treasury yields fell and the dollar weakened as new US government data showed the smallest annual increase in inflation in nearly a year. The slowdown in price growth could give the Federal Reserve cover to start scaling back the size of its interest rate increases on Wednesday.

“This month’s report provides confirmation of October’s step down in inflation pressures, and is welcome news for the Fed,” Morgan Stanley strategists wrote in a note on Tuesday morning.

Global stocks jumped on the news but then pulled back to more modest gains or slight losses.

Of the main US indices, the Dow Jones Industrial Average fell about 0.2 per cent, the S&P 500 gained 0.2 per cent and the Nasdaq Composite added 0.35 per cent. – Additional reporting by Reuters