Europe midday: Stocks rise ahead of key US inflation data

Strong gains from tech stocks, as well as heavyweights Tesco and Philips, were providing a lift on European equity markets on Wednesday, with investors in a positive mood ahead of a key inflation report from across the Pond.

The 'stickiness' of inflation over the past two months has sparked concerns on financial markets that the Federal Reserve may hold off from cutting interest rates for longer than anticipated, while the recent surge in oil prices has added upwards pressure on the price outlook. The US consumer price index for March is due out at 1430 CEST and is expected to show that the annual inflation rate rose to 3.4% from 3.2% in February.

Nevertheless, despite the nervousness surrounding the report, stocks were bouncing back after losses on Tuesday, with the Stoxx 600 up 0.6% by lunchtime, with markets across the continent making gains of around 0.4% to 0.8%.

"Investors have been dialling back expectations for a June cut by the Fed – the market action yesterday suggests caution ahead of the number," said Neil Wilson, chief market analyst at Finalto.

Asian markets were mostly higher overnight despite the news that Fitch Ratings has cut its outlook on China to ‘negative’ on the back of the country's increasingly uncertain economic prospects. The rating agency said it had revised the outlook on China’s long-term foreign currency issuer default rating (IDR) to ‘negative’ from ‘stable’. It affirmed the IDR at 'A+'.

"However, analysts believe that the downgrade does not accurately reflect the future performance of the economy," said Manoj Ladwa, director at ARJ Capital.

Back in Europe, no major economic data was due for release, with eyes starting to turn towards Thursday's European Central Bank meeting, though no change in policy is expected.

"While [ECB chief Christine] Lagarde will likely continue to make a clear case for a June cut, she will likely come short of explicitly calling for one or give any concrete guidance about the potential pace of rate cuts," according to analysts at TD Securities.

Market movers

Tech stocks across the continent were performing well after positive results from Taiwan semiconductor group TSMC, the world's largest contract chipmaker, with first-quarter revenues rising by more than forecasts. ASML and STMicroelectronics were among the best performers in Europe.

Chocolate company Barry Callebaut jumped 8% in Zurich despite missing forecasts with a 40% drop in first-half profits, though revenues were 11% higher on the back of rising cocoa prices.

UK retail giant Tesco rose 5% after its annual results showed statutory pre-tax profits were up 160% in 2023 as sales jumped 7.2% on the back of a growing market share. Chief executive Ken Murpphy noted that "inflationary pressures have lessened substantially".

Also in London, easyJet was flying 2% higher after the budget airline concluded negotiations with the Unite union over cabin crew salaries, agreeing to a 20% increase in basic pay.

Philips was also performing well, rising 3% in Amsterdam after settling on a consent decree with the DOJ and FDA regarding its the sleep and respiratory care devices under the Respironics brand. The Dutch conglomerate said the agreement "provides clarity and a roadmap to [...] restore the Philips Respironics business", following a recall of respiratory devices in 2021.