European stocks higher, euro zone inflation drops below 2%

The pan-European Stoxx 600 was up 0.19%, with sectors and major bourses diverged

European stocks started October trading in positive territory as investors parsed latest inflation data from the euro zone.

The pan-European Stoxx 600 was up 0.19%, by 9:40?am GMT, with sectors and major bourses diverged. Tech stocks gained 1.05%, while oil and gas declined 0.74%.

Shares of German chemicals group Covestro advanced to the top of the European benchmark, up 3.5%, after Abu Dhabi’s national oil company Adnoc agreed to acquire it for €14.7 billion ($16.3 billion). Meanwhile, British bakery chain Greggs slipped 3.96%, as sales growth showed signs of cooling.

Renault shares also skidded to the bottom of France’s CAC 40, down 3.6%, extending auto sector losses recorded in the previous session amid growing industry pressures and heightened competition from China.

The wobbly start to October comes after European stocks closed lower on Monday, with almost all sectors and major bourses in negative territory.

Euro zone inflation tumbled below 2% for the first time since mid-2021, preliminary data showed Tuesday, likely boosting the chances of another interest rate cut from the ECB. Inflation for the bloc stumbled to 1.8% in September, less than the 1.9% forecast by economists and below the 2.2% recorded in August, as per Eurostat.

Matthew Ryan, head of market strategy at financial services firm Ebury, said the print had effectively “sealed the deal” for a second successive 25 bps cut when the ECB meets later this month.

While President Lagarde indicated to markets at the last meeting that an October cut was not in the bank’s baseline scenario, we think that macroeconomic data since then is highly likely to force the bank’s hand, he said in a note, adding that an additional cut could be expected in December.

The regional figures comes after preliminary harmonized German inflation data released on Monday showed the country’s CPI declined to 1.8% in September, down from 2% in August.

Last week, preliminary data showed the harmonized inflation rate in both France and Spain also slumped below the ECB’s 2% target in September.