European shares eke out gains on energy boost; July inflation at record high

European shares inched higher on Thursday on a boost from oil stocks, with gains capped by growth fears as inflation reached a record high in July and European Central Bank officials hinted at another large rate hike next month.

The continent-wide STOXX 600 edged up 0.1%, lifted by a 1% gain for energy stocks after crude futures rose more than $1. The index had snapped a five-day winning streak in the previous session on inflation worries.

Consumer prices in the eurozone rose 0.1% month-on-month in July for a 8.9% year-on-year increase, the highest since the euro was created in 1999, EU’s statistics office confirmed.

Of the total, 4.02 percentage points came from more expensive energy, the costs of which surged because of Russia’s invasion of Ukraine.

Earlier, ECB board member Isabel Schnabel said the region’s inflation outlook had failed to improve since the rate hike in July and suggested another big rate increase next month.

The comments pushed Germany’s 10-year yield up 5 bps to a near four-week high.

Governing Council member Martins Kazaks echoed similar views on rate hikes in an interview, according to a news report.

On Wednesday, the Federal Reserve’s July meeting minutes also offered little comfort over the pace of US interest rate hikes.

“Europe has enjoyed a bullish run recently, but stocks closed in the red yesterday in advance of the Fed minutes as people booked their profits, thinking they’d rather square up their positions in time,” said David Madden, market analyst at Equiti Capital.

“The ECB has a lot of catch-up to do, but their bark is going to be worse than their bite because they’re constrained by the Transmission Protection Instrument (TPI) – if borrowing costs surge too high too quickly, that could lead to a debt crisis.”

The TPI is a is a bond purchase scheme aimed at helping more indebted euro zone countries.

Money markets are currently pricing in a 50 basis point (bps) ECB move in September and a 35% chance of an additional 25 bps.

Meanwhile, Norway’s central bank raised interest rates by 50 bps and said more hikes were in the pipeline.

Among stocks, Geberit fell 2.2% after saying its quarterly profit fell by a fifth as the Swiss plumbing supplies maker was hit by steep price rises.

Adyen, the biggest decliner, plunged 11.2% after the Dutch payment processor missed core earnings expectations for the first half of 2022.

Valneva fell 2.3% after the US Department of Defense ended an encephalitis vaccine supply contract with the French drugmaker.

In a bright spot, Siegfried jumped 8.6% after the Swiss pharmaceutical company beat first-half expectations and raised its 2022 outlook. [Reuters]