European shares eye best week in over three months on disinflation hopes

BRUSSELS (Reuters): European shares were muted on Friday, but remained on course to log their biggest weekly percentage jump in over three months on hopes that easing inflation would allow the US Federal Reserve to pause rate hikes soon.

The pan-European STOXX 600 index held steady at 461.49 points by 0759 GMT.

The index has gained 3.1 per cent this week, on track for its best week since the end of March and recouping last week’s losses.

The dollar tumbled this week after reports on US consumer and producer prices stoked speculation that the economy had entered a disinflation phase and the Fed could pause its tightening soon after delivering a 25 basis points rate hike in July.

Euro zone government bond yields have also fallen as traders started to pare back rate hike bets from the European Central Bank, according to analysts.

“There is a global sigh of relief if US inflation is under control, which does lift sentiment, However, if you look at the inflation prints in the UK, the Bank of England has a battle against inflation in a way that the Federal Reserve doesn’t,” said Giles Coghlan, chief market analyst at HYCM. “(The ECB) is somewhere in between. Short-term interest rate markets for the ECB are seeing perhaps one, maybe two more interest rate hikes this year.”

Data showed consumer prices in Sweden grew faster than expected in June, adding pressure on the central bank to tighten policy further.

Keeping the STOXX 600 under pressure on Friday was a 0.7% drop in telecom firms, with Nokia falling 9.8% after lowering its full-year results outlook.

Its Swedish rival Ericsson fell 7.6% after reporting a 62% slump in second-quarter adjusted operating profit.

Miners fell 0.9% but remained the best weekly sectoral performer as metal prices got a boost from a weaker dollar. Healthcare shares were a bright spot, up 0.9% on Friday.

European shares rise as tech leads gains

Focus is also on US big bank earnings, with results from heavyweights JPMorgan, Wells Fargo, Citi and BlackRock due later in the day, while investors are also geared up for euro zone company earnings.

SBB dropped 4.5% after the debt-laden Swedish property group reported a wider pretax loss in the second quarter.