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(Bloomberg) — European stocks rose after data showed US consumer prices dropped in June for the first time in six years.
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The Stoxx Europe 600 Index was up 0.2% by the close, after losing as much as 0.9% earlier. Basic resources and energy shares led gains, while media and health care were the biggest laggards. The US inflation figures took some pressure off the Federal Reserve to raise interest rates, coming alongside remarks from Fed Chair Kevin Warsh that policymakers have no tolerance for high price pressures.
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“While Warsh has now firmly got his feet under the table, it does not mean rate cuts are looming,” said Lindsay James, investment strategist at Quilter. “Instead, we are likely to see a conservative outlook from the Federal Reserve when it meets in a fortnight.”
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Ericsson AB slumped 13% after warning about margin pressure. The retail and media sectors underperformed, while energy shares gained as Brent crude rose above $85 per barrel on mounting tensions between the US and Iran.
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The interim peace between both sides effectively collapsed after American forces reimposed a naval blockade and launched another wave of airstrikes, while Tehran attacked more oil tankers sailing through the Strait of Hormuz.
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“If you were hoping for the oil price to head back toward where it was at the end of February, that might take a bit longer and can feed into inflation,” said Richard Flax, chief investment officer at Moneyfarm.
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Europe’s benchmark has dropped from record highs as a flare-up between Washington and Tehran raised worries about the economic outlook.
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Meanwhile, the big US banks kicked off the second-quarter reporting season. Goldman Sachs Group Inc. trounced its own Wall Street stock-trading records.
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In Europe, analysts are expecting the biggest increase in profit growth in three years, buoyed by blowout results from oil majors, banks and artificial intelligence winners.
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“Quite a broad range of sectors are driving the earnings upgrades — the traditional HALO-type stocks, but also the more cyclical names,” said Helen Jewell, international chief investment officer for fundamental equities at BlackRock Inc. “You’re starting to see easing conditions for Europe as a whole.”
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—With assistance from Chloé Meley, Michael Msika and Rheaa Rao.
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