(Bloomberg) — European stocks rose after swinging between modest gains and losses, as investors assessed a smaller-than-expected rise in US producer prices for clues on the health of the economy.
The Stoxx Europe 600 Index rose 0.5% by the close in London, extending gains following the data, showing the first decline in services costs this year amid an ongoing moderation in inflationary pressures.
Defensive equities outperformed with health care, utilities and real estate leading gains, while energy and mining stocks dropped the most. Oil slipped, breaking a five-day streak of gains, as traders weighed concerns about an escalation in the Middle East conflict against the prospect of a potential crude surplus.
Sentiment remains cautious with a gauge showing investor confidence in Germany’s economy plummeted to its lowest level since January. A cut in Home Depot Inc.’s guidance also fueled worries about the broader economy. In the UK, the economic picture was more positive as unemployment fell unexpectedly after companies hired at the strongest pace since November.
There is less optimism around European markets, according to the latest Bank of America Corp. fund manager survey. About 48% of European investors now expect downside for earnings in response to slowing growth and fading inflation, compared with an 18% reading in July.
European stocks clawed back nearly half of their August losses last week, with technical indicators now pointing to some recovery ahead. Yet, volatility could return and US consumer inflation due Wednesday and initial jobless claims Thursday will be scanned for further clues as to how the economy is holding up. The European benchmark gauge is still down more than 3% this month because of worries that the slowing US economy could tip into recession.
“As the market anticipates tomorrow’s inflation data, there is a strong likelihood that this information will be interpreted as a key signal of economic growth,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management. “Consequently, a lower-than-expected inflation figure could weigh on equity valuations and bond spreads, when a higher-than-expected number could help dismiss recession fears.”
Among individual movers, HelloFresh SE jumped as much as 23% after second-quarter earnings beat the average analyst estimate. Swiss health diagnostics Tecan Group AG sank 19% as it posted lower profit for the first half and cut its outlook.
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–With assistance from Sagarika Jaisinghani.
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