MILAN: European shares climbed on Tuesday after softer-than-expected US inflation data spurred bets that the Federal Reserve would scale back the size of its interest rate hikes in the world’s largest economy.
The region-wide STOXX 600 was up 1.3%, tracking sharp gains in global markets after the US Labor Department’s report showed consumer prices rose 7.1% year-on-year last month - the smallest advance since December 2021.
The latest inflation report marks the last important data point before the Federal Reserve delivers its interest rate decision on Wednesday. The reading follows a smaller-than-expected rise in consumer prices in October.
Traders’ bets of a dialled down 50 basis point rate hike from the Fed on Wednesday jumped to 97% after the data from 91% before the report came out, while they saw a 78.3% chance of the European Central Bank raising rates by 50 bps.
“Today’s movement in Europe is mostly boosted by global market optimism, which has been triggered by the US inflation data,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
“This will feed into a weaker US dollar and a stronger euro and sterling that should help tame inflation in Europe as well.” Final data confirmed Germany’s consumer prices, harmonised to compare with other European countries, were 11.3% higher year-on-year in November. Prices had risen 11.6% in October.
Germany’s DAX rose 1.3%. Meanwhile, European Union member countries are meeting in Brussels to attempt to approve a price cap proposed by the European Commission last month to shield consumers from soaring energy costs.
In UK, the Bank of England warned about “significant pressure” on households and businesses due to higher inflation and borrowing costs, but said they were more resilient than before the global financial crisis.
All the STOXX 600 sectors were trading higher, with rate-sensitive tech stocks up 3.3% and in the lead. Banks rose 1.4% to near one-week highs.
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