European markets advanced on Wednesday as investors digested easing inflation data from the US and UK, fueling optimism for a softer monetary policy stance.
The pan-European Stoxx 600 climbed 1.24% by mid-afternoon in London, with retail stocks leading gains, surging 2.44%.
Meanwhile, the FTSE 100 rose 0.9% as UK bond yields dropped following a sharp deceleration in inflation, which boosted market sentiment.
The UK’s consumer price index (CPI) fell to 2.5% in December, according to the Office for National Statistics, defying economist forecasts of an unchanged 2.6% reading.
This marks a notable step closer to the Bank of England’s 2% inflation target, potentially paving the way for a pause in interest rate hikes.
The 10-year gilt yield dropped 13 basis points to 4.757%, the lowest in a week, while the 2-year yield fell 14 basis points to 4.462%.
Across the Atlantic, US stock futures gained momentum as December’s core consumer price inflation, excluding food and energy, came in slightly below expectations at 3.2%.
The headline CPI aligned with forecasts at 2.9%, strengthening hopes that the Federal Reserve may slow its pace of rate increases.
Adding to the positive sentiment, robust earnings from major US banks bolstered global markets.
JPMorgan Chase reported record profits, while Citigroup and Goldman Sachs exceeded analyst expectations.
Sector highlights: retail and utilities outperform
Retail stocks lifted the Stoxx 600, with gains reflecting investor confidence in consumer spending trends amid easing inflation pressures.
Utilities also saw a significant uptick, benefiting from lower borrowing costs across Europe.
Meanwhile, UK business confidence continued to waver.
A report from the Institute of Chartered Accountants in England and Wales (ICAEW) revealed sentiment had hit its lowest level since late 2022, as businesses grappled with higher tax burdens and weak domestic sales growth.
Global corporate focus: Bayer faces legal setback
German pharmaceutical and biotechnology giant Bayer faced another legal blow, as a US jury ordered the company to pay $100 million in damages to four plaintiffs exposed to toxic chemicals at a Washington state school.
This adds to Bayer’s mounting legal challenges tied to its 2018 acquisition of Monsanto, including over 125,000 lawsuits related to Roundup weedkiller.
Despite the legal turbulence, Bayer’s shares edged 0.7% higher early Wednesday, reflecting resilience in its broader business portfolio.
UK markets boosted by inflation decline
The cooling inflation in the UK has eased borrowing costs, providing a breather for financial markets.
Bond yields declined across maturities, reducing funding pressures for both the government and corporations.
However, economic data continued to highlight lingering concerns, with weaker business sentiment threatening long-term growth prospects.
As the European markets wrap up a strong trading day, investor focus shifts to upcoming economic indicators and corporate earnings reports, which will provide further clarity on the region’s economic trajectory.
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