Europe close: Shares shrug PMIs as attention shifts to rate move implications

European stock markets shrugged off weak eurozone flash PMI data and looked ahead to see how it would impact the European Central Bank's future moves on interest rates when it meets later in the week.

The pan-European Stoxx 600 rallied from earlier losses to close 0.06% higher with all major regional bourses mixed. The European Central Bank meets Thursday, and is expected to announce a 25 basis point rate hike and offer guidance on its latest efforts to quell inflation.

Spain's Ibex index was down 0.63% after elections left either of the two main parties without a clear majority.

In economic news, eurozone business output fell at the fastest rate for eight months in July, according to the latest flash PMI survey data produced by S&P Global, marking a weak start to the third quarter.

"Deteriorating forward-looking indicators such as future output expectations and new order inflows also point to the likelihood of the downturn deepening in coming months, prompting companies to pull back on hiring," S&P Global said.

"Price pressures meanwhile moderated further, with average selling prices rising at the slowest rate for almost two-and-a-half years. Prices charged by manufacturers fell at a rate not seen since the height of the global financial crisis in 2009 amid slumping demand, while service sector selling price inflation cooled to a 21-month low."

The flash eurozone composite PMI output index came in at 48.9 for July, down from 49.9 in June - an eight month low. A reading below 50 indicates a contraction.

Meanwhile the services business activity index fell to 51.1 from 52.0, its lowest in six months, and the manufacturing output index crashed to at 42.9 from 44.2 in June, the worst in more than 3 years.

French and German PMI data also came in weaker than expected, slipping to 46.6 and 54.1, respectively, with eurozone bond yields falling on the news. France’s 10-year yield declined to 2.925%, and Germany’s slipped to 2.375%.

“Markets have reversed their morning weakness despite the raft of poorer PMIs. These have pushed down the euro and sterling, giving European indices their usual modest lift, but ahead of this week’s central bank decisions a view is gathering pace that the period of rising rates is at an end, providing some hope of a market uplift into year-end,” said IG analyst Chis Beauchamp.

In equity news, shares in S4 Capital slumped by a fifth as it cut full-year guidance to reflect caution on the part of its technology clients. Net revenue over the second quarter was below budget, especially in May and June.

The digital advertising and marketing firm attributed the softness to the challenging macroeconomic conditions and cautious spending, especially by its tech clients who were very focused on the short-term.

Shares in Ryanair fell as the low-cost airline reported a better-than-expected rise in first-quarter profit, boosted by strong Easter sales, but was cautious about demand over the coming months due to aircraft delivery delays from Boeing and cost-conscious passengers. The sentiment also hit rivals easyJet and Wizz.

Vodafone gained as it said first-quarter group service revenue rose 3.7%, helped by its UK operations.

UK online supermarket Ocado surged 10% has won a £200m settlement from Norwegian company AutoStore after a three-year legal battle over ‘robot' patents.

Reporting by Frank Prenesti for Sharecast.com