European stocks edged higher on Wednesday as investors balanced worries about the economic outlook with stronger than expected earnings from US streaming group Netflix.
The regional Stoxx Europe 600 index rose 0.1 per cent in early dealings, with London’s FTSE 100 up 0.4 per cent and Germany’s Xetra Dax up 0.3 per cent.
Those moves came ahead of the European Central Bank’s monetary policy meeting on Thursday, at which it is poised to raise its main interest rate for the first time since 2011.
ECB rate-setters are also set to discuss an extra-large 0.5 percentage points rise, which would take its deposit rate back up to zero for the first time since 2014, when the eurozone was facing a sovereign debt crisis.
Consumer price inflation in Europe hit a record high of 8.6 per cent last month. Data released on Wednesday showed the UK’s inflation rate also hit a fresh 40-year high of 9.4 per cent in June following sharp rises in fuel and food prices.
Jitters about further energy price shocks have increased since Russia drastically reduced its gas exports to Europe amid rising tensions over the war in Ukraine. Nord Stream 1, Russia’s main gas pipeline to Europe, is due to reopen from a maintenance shutdown on Thursday, although Russian president Vladimir Putin has commented that capacity may be reduced.
“Uncertainty remains high as energy and food remain Russia’s key war weapons. Europe can’t any more count on gas deliveries via Nord Stream 1,” said Jussi Hiljanen, strategist at SEB.
In Asia on Wednesday, Hong Kong’s Hang Seng index added 1.4 per cent and the Topix in Tokyo rose 2.3 per cent.
Wall Street’s S&P 500 equity index rallied to its strongest daily performance in a month on Tuesday, rising 2.8 per cent, as earnings season entered full swing. Netflix reported after the closing bell that it had lost fewer subscribers than it had expected in the second quarter of the year.
German-listed shares in the global streaming group rose 8.9 per cent during European morning trading, remaining almost two-thirds lower for the year-to-date.
Heading into this quarterly earnings season, investors had been spooked by business surveys that suggested the US economy was suffering the effects of surging inflation and the Federal Reserve raising interest rates.
The FTSE All-World index of global shares has fallen almost a fifth since it hit an all-time high at the start of this year. Bank of America also reported on Tuesday that fund managers had slashed their equity exposure to the lowest level since the collapse of Lehman Brothers in 2008.
“Our technical contrarian indicators measuring investor sentiment continue to provide strong tactical buy signals for equities,” said strategists at Credit Suisse.
In bond markets, Italian debt prices firmed as traders bet that Mario Draghi, who offered to stand down as the nation’s prime minister last week, would confirm he was staying on after President Sergio Mattarella rejected his resignation. The yield on Italy’s 10-year bond dropped 0.07 percentage points to 3.23 per cent as the price of the instrument rose.
The yield on the benchmark 10-year German Bund slipped 0.03 percentage points lower to 1.25 per cent, as traders awaited the ECB’s decision on Thursday.
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