European shares finish higher, FTSE 100 rises

FTSE 100 index added 1.8 per cent as the pound slid after the inflation data, which also triggered a rally in the wider real estate index which rose 4.3 per cent

European shares finished higher on Wednesday, with UK stocks leading the way after a faster-than-expected cooling in British inflation helped to strengthen hopes about rising interest rates and pushed homebuilders up.

The pan-European STOXX 600 index closed 0.3 per cent higher, expanding gains to the second session in a row.

London's export-oriented FTSE 100 index added 1.8 per cent as the pound slid after the inflation data, which also triggered a rally in the wider real estate index which rose 4.3 per cent.

The sector led gains among peers, increasing to an over two-month high.

Data showed British inflation weakened by more than expected in June and increased by its slowest pace in more than a year.

Andrea Cicione, head of research at TS Lombard said that inflation eventually appears to be coming down. Even core inflation is dropping and that opens the possibility of central banks being less hawkish.

For the ECB, money markets are still pricing in a 97 per cent probability of a 25 bps hike in interest rates next week.

While markets stay focused on data and policymakers for indications of cooling inflation and monetary policy trajectory, earnings are also on the radar.

Second-quarter earnings for STOXX 600 firms are expected to decline 9.2 per cent from the preceding year, based on Refinitiv IBES data.

In Europe, positive earnings have been a tailwind to the wider equity markets so far this year and that is something we struggle to see continuing through the back half of the year, said Laura Cooper, senior macro strategist for iShares EMEA at BlackRock.

She said: We are tilting away from luxury stocks and we like cyclicals where the earnings damage is already priced in like the energy sector.