European shares edge higher with earnings and rate rises in focus

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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 0.3 per cent, with London’s FTSE 100 up 0.4 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. While Nord Stream 1, Russia’s main gas pipeline to Europe, is due to reopen from a maintenance shutdown on Thursday, 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 1.1 per cent and Japan’s Topix rose 2.3 per cent.

Futures markets indicated Wall Street’s S&P 500 equity index would edge 0.1 per cent higher in early New York trades after it rallied to its strongest daily performance in a month on Tuesday, rising 2.8 per cent.

The FTSE All-World index of global shares has fallen almost a fifth from its January all-time high, while fund managers have slashed their equity exposure to the lowest level since October 2008, according to a Bank of America survey.

Some analysts view extreme bearishness as a signal that stock market downturns are set to end.

“Our technical contrarian indicators measuring investor sentiment as well as survey data continue to provide strong tactical buy signals for equities,” Credit Suisse strategists said in a note to clients.

“Equity markets are looking for an excuse to bounce back,” said Mobeen Tahir, research director at exchange traded fund provider WisdomTree. If corporate earnings are not “recessionary”, Tahir said, this would likely boost markets that are “desperate to hear anything that could sound like good news”.

Netflix reported after the closing bell on Tuesday that it had lost fewer subscribers than it had expected in the second quarter of the year. Its shares rose almost 7 per cent in pre-market dealings, with electric car maker Tesla up 1.9 per cent and Amazon adding 0.5 per cent.

In bond markets, Italian debt prices rose after Mario Draghi, who offered to stand down as the nation’s prime minister last week, hinted at readiness to remain in office and rebuild the governing coalition. The yield on Italy’s 10-year bond dropped 0.14 percentage points to 3.21 per cent.

The yield on the benchmark 10-year German Bund slipped 0.05 percentage points lower to 1.18 per cent, as traders awaited the ECB’s decision on Thursday.

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