Europe midday: Stocks rise as disappointing inflation data pile pressure on ECB

European stocks edged higher as investors bet that a disappointing reading on Eurozone inflation increased the odds of additional stimulus from the European Central Bank.

At midday, the benchmark Stoxx Europe 600 index was up 0.5%, Germany’s DAX was up 0.2% and France’s CAC 40 was 0.4% higher.

A ‘flash’ estimate released earlier by Eurostat showed inflation in the euro bloc rose 0.1% in the year to November, unchanged from the previous month and still well below the ECB’s target of just below 2%.

Analysts had expected year-on-year growth of 0.2%, so the latest reading is likely to pile pressure on the ECB ahead of its policy decision on Thursday.

Core inflation dropped to 0.9% from 1.1%, also weaker than expected.

“Eurozone CPI failed to gain traction for yet another month, just one day ahead of the ECB’s crucial monetary policy decision,” said Joshua Mahony, market analyst at IG.

“With both core and headline inflation undershooting expectations, it is clear that the Eurozone is nowhere near escaping the disinflation trap that the Eurozone has been caught in over recent years. Despite positive revisions to both October readings, the fact is that the Eurozone inflation picture is not improving, and this provides Mario Draghi with further basis for easing when he takes to the stand tomorrow.”

Market participants are widely expecting the ECB to announce a cut to the deposit rate and an increase in the size and scope of its bond-buying programme.

Investors will also be turning their attention to more comments from Fed chairwoman Janet Yellen and vice chairman Stanley Fischer, who are due to speak publicly over the next couple of days, ahead of the Federal Open Market Committee’s meeting on 15 and 16 December.

On the corporate front, pharmaceutical stocks gained, with Roche and GlaxoSmithKline both in the black after upgrades by Citigroup and Morgan Stanley.

In London, software company Sage slumped after its full year revenue missed analysts’ expectations.

Shares in beleaguered German car maker Volkswagen skidded after Standard & Poor’s cut its credit rating on the company for the second time in two months.

Still to come, the US ADP employment report is at 1315 GMT and non-farm productivity is at 1330 GMT.