European shares rise as Fed rate optimism outweighs weak China data

By Matteo Allievi and Amruta Khandekar

(Reuters) -European shares rose on Thursday, with technology stocks in the lead, as hopes that the Federal Reserve’s post-pandemic tightening cycle was close to an end due to cooling U.S. inflation overshadowed weak trade data from China.

The pan-European index was up 0.4% at 8:35 GMT, extending gains to the fifth straight day.

A faster-than-expected slowdown in U.S. consumer inflation reinforced bets that the Fed could end its rate hikes soon after July, helping the benchmark log its biggest percentage gain since early June on Wednesday.

Helping stocks, euro zone government bond yields fell sharply on Thursday as investors cheered prospects of peak interest rates, though they are still expecting the Fed to deliver a 25-basis point (bps) hike later this month.

On the flip side, data showed China’s exports contracted in June at their fastest pace since the onset of Covid three years ago, while imports also fell, adding to evidence of the country’s faltering economic recovery.

“(Overall), the data didn’t have the effect it should have had on the market this morning as investors are mostly focused on central banks’ monetary policies,” said Pierre Veyret, technical analyst at ActivTrades.

Industrial stocks, which are sensitive to China-related news, were in the red, with Schneider Electric (EPA:) falling 2.0%.

Markets will closely watch data on U.S. producer prices later in the day, which is also expected to show inflation easing on a yearly basis.

“If PPI data proves itself to be more resilient than expected, then it should put some pressure towards risk assets and provide the Fed with more room for its monetary tightening campaign,” added Veyret.

Technology stocks were the top gainers on STOXX 600, with IT provider Softcat advancing 5.6% after Citi raised it to “buy”.

Also supporting STOXX 600 were miners and energy firms, rising 1% and 0.7%, respectively, as commodity prices got a boost from a weaker dollar. [O/R] [MET/l]

London’s also edged 0.2% higher after a muted start. Britain’s economy shrank less than expected in May, suggesting a widely forecast recession was not already underway.

Among individual stocks, Britain’s largest homebuilder Barratt Developments (LON:) dropped 4.7% after the company warned it would build far fewer homes this fiscal year.

Shares of Swatch rose 6.6% after the watchmaker reported record growth in the first half of the year.