Europe midday: Stocks edge higher after surprise drop in inflation

European stocks were edging higher on Wednesday, though markets were rangebound as investors assessed how a surprise drop in inflation might affect the short-term outlook for interest rates.

Markets across Frankfurt, Paris, Milan and Madrid were putting in small gains in the morning session, countered by a 0.4% drop on London's FTSE 100.

As such, the Stoxx 600 index was up just 0.1% by 1225 CEST, after a decline the previous session, as the pan-European benchmark continues to trade near its record closing high of 512.67 reached last week.

Nevertheless, despite markets trading close to their peak levels, analysts at Barclays on Wednesday raised their year-end projections for the Stoxx 600 to 540, from 510 previously.

Data released early on Wednesday showed that inflation in the eurozone unexpectedly slowed in March, with the core rate dropping to its lowest in more than two years, as price pressures in the single-currency region continue to ease.

The year-on-year change in the eurozone's harmonised consumer price index fell to 2.4% last month, from 2.6% in February, according to Eurostat, surprising economists who had pencilled in no change. This was the same rate recorded in November 2023, which was the lowest level seen since July 2021.

The core rate – which excludes volatile items like food and energy – also slowed, to 2.9% from 3.1%, under expectations of 3.0% and the lowest reading since February 2022.

Chief market analyst Joshua Mahony from Scope Markets said the data "brought relief" to investors. "With CPI new standing at 2.4%, there is a strong chance that we see the European Central Bank achieve their goal of bringing it back below 2% by the time the June meeting comes around."

Meanwhile, analysts at Rabobank said the conditions for an interest-rate cut by the ECB in June were "ripening".

Markets will also be keeping an eye on developments in the US, where recent strong economic data has pushed back expectations of the first rate cut by the Federal Reserve. Wednesday will see the release of the closely watched ADP employment report, before Friday's non-farm payrolls data.

Markets movers

London-listed engineer Renishaw slumped 3% after Germany’s Siemens confirmed it was not planning to make an offer for the company.

Zurich-based reinsurer Swiss Re was in the red as markets gave a muted reaction to news that the head of its Corporate Solutions unit will succeed long-standing chief executive Christian Mumenthaler.

Swiss solar panel manufacturing Meyer Burger plummeted over 25% after raising CHF207m via a rights issue.