European shares edged higher on Thursday after a strong rally in the previous session on signs of US inflation cooling, while Aegon climbed after the Dutch insurer raised its full-year forecast. The pan-European Stoxx 600 index rose 0.1 per cent, after clocking its best session in nearly two weeks on Wednesday on bets that a softer-than-expected US inflation reading would encourage the Federal Reserve to become less aggressive on interest rates hikes.
“Even if European stocks are not rallying as some of their counterparts today, they’re going up as the interpretation by markets is that the inflation numbers were synonymous with the Fed changing its policy,” said Sebastian Paris-Horvitz, head of research at La Banque Postale Asset Management. Money markets are pricing in over a 60 per cent chance of a 50 bps hike from the Fed at next month’s meeting.
Ryanair was down 0.7 per cent at €12.55 after its boss Michael O’Leary warned the era of ultra-low air fares was over while suggesting Brexit was to blame for a shortage of airport workers in the UK that has created chaos during the peak holiday period. The airline’s group chief executive said surging oil prices would make it impossible to keep offering promotional tickets for less than €10.
Both main banks, AIB and Bank of Ireland were weaker amid conflicting signs over whether the current inflationary surge has peaked. AIB was down marginally at €2.28 while Bank of Ireland was down 1.2 per cent at €5.79. Kingspan was one of the stronger performers, rising 1.3 per cent to €63.66. Paddy Power owner Flutter also enjoyed some upward momentum, rising 2 per cent to €111.
The FTSE 100 has been dragged down by pharmaceuticals suffering a blow, while Wall Street revelled in another day of sinking inflation readings. Shares in pharma giant GSK fell as much as 12 per cent during the day, its biggest drop since 1998, and its consumer spin-off brand Haleon by as much as 13 per cent on Thursday, helping to push the FTSE into the red.
The share price slump comes amid reports that Haleon is facing US lawsuits surrounding the safety of heartburn drug Zantac.
While another day of bleak energy news in the UK set the expected price cap £200 higher than forecasts from earlier this week, with bills topping £5,000 next year. The London index finished the day 41.2 points lower, or 0.55 per cent, at 7465.91.
Healthcare shares led losses, dragged by declines in GSK, Sanofi and Haleon amid growing concerns about US litigation focused on a heartburn drug that contained a probable carcinogen. Miners also fell 0.8 per cent on weak results from Antofagasta. The company’s shares declined 2.2 per cent and dragged peer Rio Tinto down 3.7 per cent.
The STOXX 600 is down about 10 per cent so far this year, compared with a more than 11 per cent decline for Wall Street’s S&P 500 index. US equities are heavily dependent on moves in big technology stocks, which fell sharply in the first half of the year on worries over rising interest rates.
“The big decline in global markets in the first quarter was associated with big growth stocks in the US falling, and therefore Europe, which is less heavy on those, outperformed,” Mr Paris-Horvitz added. Still, Europe is struggling with the fallout of the war in Ukraine as it looks to source energy from non-Russian sources.
Stocks pared gains on speculation the rally that followed softer-than-expected inflation data went too far, with the Federal Reserve still set to keep its monetary policy tight.
Tech underperformed after a surge that sent the Nasdaq 100 more than 20 per cent above its June lows. Big names like Tesla and Amazon fell. The S&P 500 trimmed a rally that topped 1 per cent earlier in the day. The benchmark traded near the 50 per cent Fibonacci retracement level for the current bear market, with several analysts attributing the recent advance to short-covering.
“Bear-market rallies and the start of new bull markets look similar, but we need to see the broad-based momentum to believe this is more than a shorter-term rally, wrote Victoria Fernandez, chief market strategist at Crossmark Global Investments. “Have we reached a bottom then? We are not 100 per cent in that camp.” — Additional reporting by Reuters/Bloomberg