Europe midday: Shares pare gains despite EZ CPI data; Eyes on Fed

European shares wobbled at lunchtime despite a larger-than-expected fall in eurozone inflation and ahead of a busy schedule of central bank meetings, economic data and a seemingly endless supply of corporate earnings news.

The pan-European Stoxx 600 index was up 0.2% at 1130 GMT as investors prepare for the start of the US Federal Reserve’s policy meeting that should give an indication of when interest rate hikes could end.

In the single currency zone a flash estimate showed consumer price inflation declined to 8.5% year-over-year from 9.2% in December, coming in below consensus expectations of 9%.

Energy inflation fell to 17.2% in January from 25.5% a month earlier, while inflation in food, alcohol and tobacco ticked up to 14.1% from 13.8%.

Meanwhile in the UK, activity in the UK’s manufacturing sector shrank in January, albeit less than expected, for the sixth month in a row, according to a survey.

The S&P Global/CIPS manufacturing purchasing managers’ index rose to 47.0 from a 31-month low of 45.2 in December, coming in above the flash estimate of 46.7 but below the 50.0 mark that separates contraction from expansion.

Trader focus will switch to the US Fed meeting, which comes before the European Central Bank and the Bank of England pronounce on rates on Thursday. A 25 basis point increase is widely expected, but eyes will be on clues about how much further and deeper the hikes will be.

"Inflation has been falling for a while now in the USA and many analysts believe this will be the last increase, to be followed by a lull before the Fed then moves to begin cutting rates later this year. A lot of money rides on this so-called 'Fed Pivot'. Whether it happens depends on where inflation goes from here," said Interactive Investor analyst Victoria Scholar.

"Economists did not do a great job predicting the scale and duration of post-pandemic US inflation, but for what it is worth, most seem to expect it to continue to fall from here."

In equity news, telecoms giant Vodafone fell after a weak performance in German, Spain and Italy hit group revenues.

ITV gained on a report that Hollywood producer Peter Chernin and French TV production group Banijay's parent have expressed interest in UK broadcaster ITV's Studios unit.

Swiss drugmaker Novartis fell after predicting that core operating income would grow in a "mid single digit" percentage range in 2023.

French nursing care homes company Orpea, riddled with scandal after charges of malpractice at its homes, slumped after the company said that in principle it had reached a financial restructuring deal with investors.

Reporting by Frank Prenesti for Sharecast.com