European stocks gain with focus on US inflation for policy cues

BLOOMBERG

European stocks advanced, catching up to overnight gains on Wall Street, as investors awaited data that is likely to show a cooling in US inflation. The Stoxx 600 Index was up 0.6% in London, with technology and insurance stocks leading the gains. Travel and leisure and healthcare sectors underperformed.
JD Wetherspoon Plc climbed after the UK pub operator gave a trading update, with Goodbody noting that the outlook for fiscal 2024 seems better than expected. About You Holding SE jumped by the most on record as it reaffirmed its revenue forecast for the full year.
After posting its biggest decline since March, Europe’s benchmark index is attempting a recovery as investors weigh early corporate earnings reports as well as the trajectory of inflation and its impact on central bank policy. A trend of cooling US consumer price pressures in the latest figures due Wednesday could be pivotal for policymakers in the months ahead, according to Bloomberg Economics.
Equity markets are already displaying a degree of calm that reflects investor optimism that inflation is now under control — at odds to the stress seen in bond markets. That’s likely to pressure stocks if the data disappoint, strategists say.
“The fact remains that monetary policy is tightening everywhere, those full effects are still far from being felt and yet multiples have been expanding — which makes very little sense indeed,” said James Athey, investment director at Abrdn.  “Longer term, there isn’t anywhere for risky assets to hide. Earnings are likely to fall and the discount rate is likely to remain relatively high. That means neither profits nor multiples should save the market from a ready reckoning.” Barclays Plc strategist Emmanuel Cau said the second-quarter earnings season is expected to be mixed.