Europe close: Stoxx 600 hits one-month high as data lifts the mood

European stocks closed at their highest levels in a month on Thursday as improving economic data lifted sentiment across the continent.

The Stoxx 600 index finished up 0.6% at 519.51, its highest since 12 June and inches away from the 524.71 record closing high reached in May. Benchmark indices across all major regions finished the day with decent gains.

Chris Beauchamp, chief market analyst at IG, said market sentiment was "helped by the lack of any fresh turmoil in French politics, and as the shock of Sunday’s result continues to dissipate European equities have also moved higher".

Flash figures showed the UK economy grew by 0.4% in May, compared with zero growth in April and ahead of a 0.2% forecast. In the three months to May, GDP rose by 0.9%, driven by a 1.1% uplift in services output. It was the quickest pace of growth for over two years, the ONS noted.

Meanwhile in Germany, annual inflation was confirmed at 2.2% in June, down from 2.4% in May, the federal statistics agency said. On a harmonised basis to compare with other European Union countries, annual inflation eased to 2.5%, from 2.8% the month before.

Sentiment was also boosted by better-than-expected inflation in the US, raising hopes that an interest-rate cut from the Federal Reserve in September may now be on the cards. Annual inflation slowed to 3.0% last month, down from 3.3% in May and below the consensus forecast of 3.1%. This was the lowest level since June 2023, matching a reading not seen since March 2021.

"This data release was seen as crucial for the timing of rate cuts from the Fed, after Jerome Powell said that the US central bank still wanted to see progress made on inflation before cutting interest rates. This is the progress that they will want to see," said Kathleen Brooks, research director at XTB.

Brooks said the data "has given the green light to traders to fully price in a rate cut from the Fed in September".

UK water stocks rise

London-listed water providers Severn Trent, Pennon and United Utilities gained after regulator Ofwat outlined draft determinations regarding the industry’s five-year investment plans, covering 2025 to 2030.

In fact, Pennon was the highest riser on the Stoxx 600, jumping 10% after announcing that its chief financial officer, Steve Buck, will be stepping down after less than eight months in his position at the troubled British water company.

Close behind was industrial maintenance, repair and operation products firm RS Group which surged more than 9% after saying it continues to expect a stabilisation in trading conditions over the current financial year.

Swiss chocolate maker Barry Callebaut fell 12% despite reporting slightly higher sales volumes during the nine months ended May, although a surge in cocoa prices hit demand.