European shares recover on soft UK inflation data, earnings

The pan-European Stoxx 600 ended 0.5 per cent higher following a 1 per cent decline in the previous session

European shares regained ground on Wednesday as softer-than-expected UK inflation figures boosted hopes of imminent interest rate cuts by the Bank of England, with a raft of upbeat corporate earnings giving an additional lift.

The pan-European Stoxx 600 ended 0.5 per cent higher following a 1 per cent decline in the earlier session.

The UK’s FTSE 100 added 0.8 per cent after data showed domestic inflation unexpectedly held steady in January, defying forecasts of an increase.

On the one hand, the UK economy is fragile, and the labour market has loosened materially over the past year. These are all reasons to cut rates, said Michael Field, European market strategist at Morningstar.

Equity markets across the world stabilised after a sell-off following Tuesday’s hotter-than-expected US inflation reading, which pushed back rate-cut expectations from the US central bank.

Global equities are very much in a ‘buy the dip’ mindset, so when it was clear that there seems to be some limit to the selling in US stocks and bonds, we saw European markets recover, said Steve Sosnick, chief strategist at Interactive Brokers.

Meanwhile, European Central Bank vice-president Luis de Guindos said more data is needed before the European Central Bank can be comfortable that record-high rates have done their job.

Data showed eurozone economic growth was flat in the last three months of last year against the previous quarter.

Among sectors, the aerospace and defence index hit a record high, closing 1.2 per cent higher.

Tech shares bounced back from the prior session’s steep losses with a gain of 1.0 per cent, while miners slid 0.5 per cent, reaching a near four-month low.