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European Stocks Close 1% Higher After Cooler-Than-Expected U.S. Inflation Print

Nathan Laine | Bloomberg | Getty Images
  • U.S. consumer prices rose 8.5% annually in July, slowing from the previous month in large part due to a drop in oil prices.
  • Ahold Delhaize, ABN AMRO, E.On, TUI Group, Metro, Deliveroo, Prudential and Aviva were among the major companies reporting earnings before the bell on Wednesday.

LONDON — European markets staged a rally late Wednesday afternoon after a key U.S. inflation print showed price rises slowing faster than expected.

The pan-European Stoxx 600 closed up by 1% provisionally, having earlier hovered around the flatline for much of the trading session. Retail shares climbed 3% to lead gains as almost all sectors and major bourses entered positive territory.

U.S. consumer prices rose 8.5% annually in July, slowing from the previous month in large part due to a drop in oil prices. Economists surveyed by Dow Jones were expecting headline CPI to increase 8.7% on an annual basis and 0.2% monthly.

The easing of inflation will inform the U.S. Federal Reserve's monetary tightening trajectory ahead of its September meeting.

On Wall Street, U.S. stocks roared higher in the wake of the report, rebounding after the S&P 500 and Nasdaq fell for a third consecutive day Tuesday.

While much will be made of the indication that headline inflation may be peaking, core inflation remained significantly above target, meaning it is far too early for the Fed to "declare victory" and cease raising interest rates, according to Mike Bell, global market strategist at JPMorgan Asset Management.

"With the Atlanta Fed's measure of wage growth now at 6.7%, core inflation is unlikely to return to anywhere near target until wage pressures moderate significantly," Bell said in reaction to the figures.

With unemployment at the lowest level in over 50 years and workers demanding pay rises to try to keep up with inflation, Bell suggested wage growth is unlikely to moderate sufficiently to return inflation to the Fed's target, without first seeing a rise in unemployment.

"So while a peak in inflation is welcome news, it's probably not enough to allow the Fed to ease off its tightening or to put recession fears to bed."

Shares in Asia-Pacific declined on Wednesday, led by more than 2% losses for Hong Kong's Hang Seng index after Chinese inflation data rose. The producer price index for July rose by 4.2% annually while consumer prices increased by 2.7%, both slightly below analyst expectations.

On the data front in Europe, German final July consumer price inflation came in at 7.5% year-on-year and 0.9% monthly, official figures revealed Wednesday, roughly in line with expectations.

Earnings remain a key driver of individual share price movement in Europe. Ahold Delhaize, ABN AMRO, E.On, TUI Group, Metro, Deliveroo, Prudential and Aviva were among the major companies reporting before the bell on Wednesday.

British insurer Aviva saw its shares jump 12% after upbeat first-half earnings.

Ahold Delhaize shares gained almost 8% in early trade after the Dutch retailer reported strong second-quarter earnings and shelved plans to spin off its non-food retailer Bol.com due to unfavorable market conditions.

Vestas shares jumped nearly 9% after the Danish wind turbine company retained its guidance despite missing second-quarter earnings expectations, and said its price power was improving.

At the bottom of the index, German pharmaceutical company Evotec slid 8% after Morgan Stanley downgraded the stock to "underweight."

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