European stocks uncertain as relief rally falters; EDF up 15% on government takeover

LONDON — European stocks were choppy on Tuesday as the relief rally seen in the previous two sessions lost some momentum.

The pan-European Stoxx 600 index hovered fractionally below the flatline by mid-morning, having earlier been down more than 0.6%. Tech stocks shed 1.1% while health care stocks added 1.3%.

The European blue chip index gained 0.8% during the previous trading session, building on gains at the end of last week amid broadly positive global sentiment.

However, several analysts voiced skepticism about the sustainability of the rally, given the lack of fundamental drivers and persistent concerns about growth and inflation.

All eyes this week will turn to the European Central Bank‘s policy meeting in Frankfurt on Thursday, with policymakers having given advance notice of a first hike in 11 years but facing a backdrop of slowing growth amid the war in Ukraine and subsequent threats to energy supplies.

“It’s a big week in Europe, for both macro and markets; the ECB announcement will drive sentiment.”

Neil Birrell

CIO, Premier Miton Investors

The euro climbed to almost a two-week high and euro zone government bond yields jumped on Tuesday morning after Reuters reported, citing a source, that the ECB will weigh up whether to opt for a 50 basis point hike as opposed to the 25 basis points already penciled in.

Euro zone inflation hit 8.6% year-on-year in June, final figures confirmed on Tuesday.

“With 25bps inked in up until now, it may be that they consider 50bps, which would be some distance from previous guidance,” said Neil Birrell, chief investment officer and fund manager at Premier Miton Investors.

“It would, however, be consistent with what markets are expecting in terms of policy direction over the coming few weeks from major central banks. It’s a big week in Europe, for both macro and markets; the ECB announcement will drive sentiment.”

Earnings season is also gathering steam. Novartis, Ubisoft, Remy Cointreau, Vinci, Telenor, Assa Abloy, Swedbank and Finnair were among those reporting before the bell on Tuesday.

In terms of individual share price movement, French utility EDF jumped more than 15% after confirmation that the French government will pay 9.7 billion euros ($9.9 billion) to take full control of the debt-laden company.

At the bottom of the index, French manufacturer Alstom fell 6% after its quarterly earnings report.

Political instability has also returned to prominence, with the U.K. Conservative Party leadership contest entering its fourth round of ballots among MPs as the remaining candidates seek to succeed Prime Minister Boris Johnson.

Meanwhile, Italian Prime Minister Mario Draghi last week had his resignation rejected by President Sergio Mattarella, having offered to step down when one of the parties in his coalition government boycotted a confidence vote in a new wide-ranging policy package.

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