Europe midday: Shares rally despite Philips plunge

European shares rallied by lunchtime as investors braced themselves for the never-ending deluge of corporate news and a policy meeting of the US Federal Reserve later in the week.

The pan-European Stoxx 600 index recovered from morning losses to gain 0.24% with all major continental bourses higher.

Economists are expecting a 75 basis interest rate hike by the US central bank. The European Central Bank last week brought in a 50 basis point increase, larger than previously suggested.

Hawkish ECB policymaker Robert Holzmann told an Austrian broadcaster on Sunday that the Governing Council will consider the economic landscape across the euro zone before determining whether another big rate hike will be feasible in September.

“It is a busy week for the market with a slew of earnings, the Fed’s interest rate decision and US GDP figures. Following a softer session overnight in Asia with the Nikkei leading the declines, European markets have opened lower with US futures also pointing to a weaker start amid risk-off sentiment,” said Interactive Investor head of investment Victoria Scholar.

“Oil prices are trading lower with brent crude under pressure for the fourth consecutive session as the market braces for another US interest rate hike on Wednesday."

"Aggressive action from the Fed to combat inflation could add to pressures on the global economy and reduce global energy demand, particularly if it induces a US recession.”

In Germany a survey released by the Ifo Institute, said the country was on the brink of recession.

The survey found that business sentiment deteriorated significantly in July amid surging energy prices and worries about gas supply. The business climate index fell to 88.6 from 92.2 in June, hitting its lowest point since June 2020.

The current situation index declined to 97.7 from 99.4 and the expectations index slumped to 80.3 in July from 85.5 in June.

Ifo president Clemens Fuest said: "Higher energy prices and the threat of a gas shortage are weighing on the economy. Germany is on the cusp of a recession."

In equity news, Philips shares plunged after the Dutch medical equipment company missed second-quarter core earnings expectations by a significant margin and cuts full-year and mid-term profit outlook.

Verbund gained after Barclays upgraded the Austrian electrical company’s shares to “overweight.”

Budget airline Ryanair was up after swinging to a profit in the first quarter as traffic recovered, but did not provide any guidance for the year given the "fragile" air travel market.

The company swung to a profit after tax of €170m in the first quarter from a loss of €273m in the same period a year earlier. However, this was well below the €243m reported in the first quarter of FY20, before the pandemic struck.

Reporting by Frank Prenesti at Sharecast.com