Europe midday: Shares hold gains despite cautious EC inflation outlook

European shares held gains on Monday, shrugging off European Commission forecast on persistent inflation, as investors also eyed developments in the Turkish election and continuing talks on the US debt ceiling.

The pan-European Stoxx 600 index was up 0.36% in midday trade, with all major bourses higher. Asian stocks closed higher across the board.

US President Joe Biden on Sunday said he expected to meet with congressional leaders on Tuesday for talks on a plan to raise the nation's debt limit and avoid a default.

Eyes will also be on the US retail sales snapshot due out Tuesday, amid fears of a slowdown after a downbeat view from consumers in the University of Michigan survey on Friday. Oil prices were also lower on fears of a US recession.

In Turkey, the tightly-contested election headed for a runoff vote at the end of the month, after neither incumbent President Tayyip Erdogan nor his rival Kemal Kilicdaroglu won an outright majority.

Hargreaves Lansdown analyst Susannah Streeter said the uncertainty was hitting the Turkish lira.

“Erdogan has led highly controversial monetary policies aimed at increasing exports, rather than tackling painful inflation, and the prospect of Turkey’s ‘strongman’ winning another term has weakened the currency further,” she said.

“There are expectations of a rollercoaster ride in the days ahead, as sentiment waxes and wanes about the prospects for the opposition coalition, which has pledged to pull more conventional levers to restore financial stability.”

In economic news, the European Commission warned that inflation is falling more slowly than hoped, prompting worries that more interest rate increases could be on the way.

In its Spring Forecast, the commission said the resilience of the European Union economy had also delayed any slowdown in inflation. Consumer prices inflation was expected to fall this year to 5.8% from 8.4%, but higher than forecasts made in February.

"Falling energy commodity prices are driving a sharp fall in energy consumption bills and the overall rate of price growth from its October peak, but core inflation has been firming. As a result, markets have raised expectations about future policy rate hikes," the commission said.

"The small contraction of core inflation in April suggests that it has also peaked, but the convergence towards target is now expected to take longer. Greater persistence of core inflation would call on monetary authorities to act even more forcefully to stem inflationary pressures."

In Germany, the wholesale price index fell slightly in April compared to the same month last year, the first year-on-year drop since December 2020.

On the equities front, Diploma shares gained as the company lifted guidance after strong first half results.

Shares in German drug developer Evotec were up more than 5% as the company reaffirmed annual earnings targets.

Wood Group plunged more than a third after private equity outfit Apollo pulled out of bid talks.

Reporting by Frank Prenesti for Sharecast.com