European Market Recovery
European stocks rise slightly as falling oil prices offset persistent inflation concerns.
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Key Points
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The International Energy Agency sharply revised its oil-demand outlook, forecasting a 2.5 million-barrel-per-day decline in global demand this year, compared with its earlier estimate of a 1.6 million-barrel-per-day drop. It also expects global oil supply to fall by 5.7 million barrels per day.
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The Federal Reserve’s rate-hike expectations strengthened after U.S. inflation accelerated in August: markets priced in an 87% probability of a quarter-point increase at the Fed’s next meeting, up from about 72% the previous day.
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UBS Global Wealth Management chief investment officer Mark Haefele said the anticipated tightening path was unlikely to derail improving European corporate earnings, adding that the firm favored European cyclicals such as technology, industrials and banks.
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Among individual European stocks, Italian semiconductor-testing equipment maker Technoprobe rose 4.7% after customer Taiwan Semiconductor Manufacturing Co. reported strong August revenue.
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Company-specific developments also moved European shares: Alstom gained after signing €1.2 billion in contracts with TransPennine Express, while Trainline advanced after announcing a £100 million share-buyback program; United Internet fell after launching cost-cutting programs that included job reductions.
European stocks rose slightly Friday as oil prices fell more than 3% on hopes that Iran, Oman, and Gulf states could agree on shipping safety through the Strait of Hormuz. The pan-European STOXX 600 gained 0.3% to 0.5%, according to Reuters, but the week remains on track for its sharpest decline in months after Thursday's two-month low.
The modest bounce masks deeper concerns. Rising government-bond yields and inflation fears are keeping investors cautious about whether central banks will hold rates steady or raise them further. Reuters reported that markets now price in an 87% chance the Federal Reserve will hike rates by a quarter-point at its next meeting, up from 72% the day before.
Oil Demand Forecast Cuts Ease Energy Inflation Worries
The International Energy Agency released a sharply lower forecast for global oil demand, projecting a 2.5 million-barrel-per-day decline this year instead of its earlier estimate of 1.6 million barrels per day. The agency also expects global oil supply to fall 5.7 million barrels per day. These cuts ease worries that persistent energy-driven inflation will force central banks to keep rates elevated or push them even higher.
Rate-Hike Bets Climb After U.S. Inflation Ticks Up
U.S. inflation accelerated in August, rattling markets and boosting expectations for Federal Reserve action. Reuters reported that traders now price in an 87% probability of a quarter-point rate increase at the Fed's next meeting, up sharply from 72% the previous day. This shift reflects investor concern that sticky inflation could delay plans for rate cuts later this year.
European Earnings Remain Strong Despite Rate Outlook
Fears of higher rates have not yet dented optimism about European corporate profits. Mark Haefele, chief investment officer at UBS Global Wealth Management, said rising rates are unlikely to derail improving European earnings. UBS favors cyclical stocks—technology, industrials, and banks—arguing they can outperform even in a tighter monetary environment.
Individual stock moves backed this view. Technoprobe, an Italian semiconductor-testing equipment maker, surged 4.7% after its customer Taiwan Semiconductor Manufacturing Co. posted strong August revenue. Alstom gained after signing €1.2 billion in contracts with TransPennine Express. Trainline advanced following a £100 million share-buyback announcement.
Britain's Economy Expands While Europe Watches Fed
Britain's gross domestic product expanded 0.4% in July, offering a bright spot amid broader economic uncertainty. The growth provided some relief to investors worried that higher rates could slow the entire region. Meanwhile, markets await U.S. inflation data for clearer signals about whether the Federal Reserve will pause or continue tightening policy in coming months.
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