European stock markets stabilized Wednesday, with investors digesting better than expected U.K. inflation numbers, more corporate earnings as well as China’s deteriorating economic outlook.
At 03:45 ET (07:45 GMT), the DAX index in Germany traded 0.2% higher, the CAC 40 in France climbed 0.3%, while the FTSE 100 in the U.K. traded largely flat.
U.K. inflation remains high despite fall
The latest economic release in Europe saw the U.K.’s annual headline inflation drop to 6.8% in July from 7.9% the prior month, with falling gas and electricity prices the biggest driver behind the drop in inflation, while food price inflation also eased.
While this is undoubtedly welcome news as far as the Bank of England is concerned, this still leaves inflation more than three times higher than its 2% medium-term target.
Additionally, data released Tuesday showed that basic wages in Britain rose 7.8% in June, a new record growth rate, adding to long-term inflation pressures even after 14 back-to-back increases in interest rates.
There are also important data due in the eurozone, with preliminary second-quarter gross domestic product figures expected to show flimsy growth of 0.2% and industrial production data likely to be negative.
China’s economic worries pile up
Sentiment had been hit earlier in the day by fresh signs of economic decline in China, the world’s second-largest economy, a major regional growth driver and a substantial market for many of Europe’s largest companies.
Data released overnight showed that China’s new home prices fell in June for the first time this year, providing more evidence of the pressures facing the country’s important property sector.
This followed Chinese retail sales and industrial production growing much less than expected in July, while data released last week showed that the world’s second-largest economy sank into disinflation during July.
At the same time, U.S. retail sales soared in July, pointing to more potential upside pressure for inflation, presenting a hawkish outlook for interest rates in the world’s largest economy, especially after Friday’s stronger-than-expected producer prices.
Banking sector in focus
European banking sector has seen some losses Wednesday, following overnight weakness on Wall Street as credit rating agency Fitch warned it may have to downgrade credit ratings of dozens of banks, including JPMorgan Chase (NYSE:JPM). The mining sector has also struggled on the back of China’s economic weakness, given the Asian giant is a major source of demand.
Elsewhere, Aviva (LON:AV) stock rose 1.9% after the insurer beat its financial targets after seeing a 58% jump in health insurance sales as customers looked for alternatives to long NHS waiting lists.
Admiral (LON:ADML) stock soared almost 7% after the British motor and home insurer posted a rise in its first-half pretax profit. Still, the company cut its dividend by 15% as it warned of a “backdrop of continuing elevated levels of claims inflation.”
Crude gains after hefty U.S. inventories draw
Oil prices bounced Wednesday after early losses, as traders weighed concerns over China’s weakening economy against a bigger-than-expected draw in U.S. inventories.
Data from the American Petroleum Institute showed that U.S. oil stockpiles saw a much bigger-than-expected 6.2 million barrel draw last week, and official inventory data, from the Energy Information Administration, is due later on Wednesday, for confirmation.
By 03:45 ET, the U.S. crude futures traded 0.1% higher at $81.08 a barrel, while the Brent contract climbed 0.1% to $85.00. Both benchmarks had weakened to their lowest since Aug. 8 on Tuesday.
Additionally, gold futures rose 0.1% to $1,935.85/oz, while EUR/USD traded 0.2% higher at 1.0924.
