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By Paolo Laudani, Sruthi Shankar and Johann M Cherian
(Reuters) -European stocks settled higher on Wednesday, bouncing from losses in the previous session as investors focussed on upcoming interest rate cuts and a key U.S. inflation report later this week.
The continent-wide STOXX 600 index was up 0.6%, with the automobiles and parts sector, which has lagged for most of the year, among top gainers with a 1.1% jump.
Continental gained 7.2% after the German automotive supplier forecast profitability in its automotive business to improve in the third quarter.
Germany’s DAX index outperformed the STOXX with a 1% jump.
On the flipside, banks underperformed as Dutch lender ING dropped 2.5% after Deutsche Bank downgraded the stock to “hold”, calling 2024 a peak for capital returns and share buybacks.
The benchmark STOXX 600 touched a two-week low on Tuesday, with China-exposed mining and luxury sectors taking a beating as investors were disappointed by a lack of fresh stimulus steps from Beijing.
All eyes will be on a news conference by China’s finance ministry on Saturday for new details on fiscal stimulus.
Other major catalysts this week include the minutes of the Federal Reserve’s last meeting, U.S. consumer prices data and U.S. bank earnings.
The Fed cut rates by a large 50 basis points last month. Investors expect two more rate cuts of 25 bps each this year.
Meanwhile, many European Central Bank policymakers argued their case for another interest rate cut next week.
Money market pricing suggests traders have almost fully priced in a 25 bps rate cut by the ECB next week, and see a 94% chance of another such move in December.
Against a backdrop of a stagnating economy, cooling price pressures and a softening labour market, the STOXX index along with equities in major regional markets are on track for gains this year.
“Europe is trading at a discount relative to the U.S. and even though (economic) growth is less than what you would want, corporate profitability is still holding up in aggregate terms,” said Richard Flax, chief investment officer at Moneyfarm.
“You’re going to see interest rate cuts and then an acceleration in European growth over the next 12 to 18 months.”
Focus will be on third quarter earnings next week, with data compiled by LSEG forecasting a 4.6% increase from a year ago.
Struggling German battery maker Varta jumped about 81% after it said Porsche AG would invest in its business unit for large-format lithium-ion cells.
Gerresheimer jumped 4% after activist investor Ricky Chad Sandler bought a 5.43% stake in the German medical packaging maker.
(Reporting by Paolo Laudani in Gdansk, Sruthi Shankar and Johann M Cherian in Bengaluru; Editing by Sherry Jacob-Phillips, Mrigank Dhaniwala and Chris Reese)