European stocks rise after eurozone GDP and inflation data

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European stocks advanced on Monday as fresh data showed headline eurozone inflation continued to slow this month, boosting investor hopes that the European Central Bank could soon stop raising interest rates.

Europe’s region-wide Stoxx 600 rose 0.1 per cent, rebounding from early-morning losses, as did Germany’s Dax, while France’s Cac 40 gained 0.5 per cent.

The euro was little changed at 1.103 to the US dollar.

Annual headline price growth in the 20-country currency block slowed to 5.3 per cent in July, from 5.5 per cent in the previous month, easing pressure on the ECB to raise rates a lot higher.

Policymakers last week lifted the region’s benchmark deposit rate to 3.75 per cent, its highest since 2001, but dropped the usual guidance that borrowing costs would keep rising.

ECB president Christine Lagarde confirmed the central bank’s ninth successive rate rise could have been the last, noting that her stance on further tightening in September was a “decisive maybe”, moving away from the hawkish language she had used in past meetings. 

Yet core inflation, which excludes volatile food and energy prices, remained unchanged at 5.5 per cent in July, marginally exceeding analysts’ expectations.

Separately, the region’s economy grew 0.3 per cent in the three months to July, after stagnating in the previous quarter. The reading came in above the 0.2 per cent forecast in a Reuters poll of economists. 

“For the data-dependent European Central Bank, this GDP reading will not be a dovish argument at the September meeting, leaving a further hike on the table,” said Bert Colijn, senior eurozone economist at ING.

In government debt markets, the yield on two-year German Bunds rose 0.02 percentage points to 3.22 per cent, while the yield on 10-year bonds, a regional benchmark, added 0.02 percentage points to 2.48 per cent. Bond yields rise as prices fall.

Meanwhile, US futures contracts tracking Wall Street’s benchmark S&P 500 rose 0.1 per cent, while those tracking the tech-focused Nasdaq 100 were flat ahead of the New York open. 

More US megacaps, including Apple and Amazon, are due to report earnings later this week, offering more insight into the health of Wall Street’s high-flying tech sector.

Asian equities rallied as investors expected more economic stimulus from the Chinese government, after fresh data showed activity in the country’s services sector missed expectations in July, and manufacturing weakened.

The moves came after China’s manufacturing purchasing managers’ index came in at 49.3 on Monday, marginally above consensus expectations of 49.2. The non-manufacturing PMI, which includes sectors such as construction and agriculture, was 51.5, marking its lowest level this year.

A reading below the neutral 50 mark means the majority of survey respondents indicated an overall contraction in the sector, while a reading above 50 signals an expansion.

Hong Kong’s Hang Seng index gained 0.8 per cent, while the benchmark CSI 300 rose 0.6 per cent.

“There is encouraging stimulus talk though, hence the equity rally [in Asia] this morning”, said Jim Reid, research strategist at Deutsche Bank.