LONDON — European stocks closed sharply higher Tuesday, with a late afternoon surge aided by positive momentum on Wall Street.
The pan-European Stoxx 600 index closed up by 1.4% despite hovering around the flatline for much of the session. Autos added 3.2% while banks climbed 3%.
The European blue chip index gained 0.8% during the previous trading session, building on gains at the end of last week amid broadly positive global sentiment.
All eyes this week will turn to the European Central Bank‘s policy meeting in Frankfurt on Thursday, with policymakers having given advance notice of a first hike in 11 years but facing a backdrop of slowing growth amid the war in Ukraine and subsequent threats to energy supplies.
The euro climbed to almost a two-week high and euro zone government bond yields jumped on Tuesday morning after Reuters reported, citing a source, that the ECB will weigh up whether to opt for a 50 basis point hike as opposed to the 25 basis points already penciled in.
Euro zone inflation hit 8.6% year-on-year in June, final figures confirmed on Tuesday.
“With 25bps inked in up until now, it may be that they consider 50bps, which would be some distance from previous guidance,” said Neil Birrell, chief investment officer and fund manager at Premier Miton Investors.
“It would, however, be consistent with what markets are expecting in terms of policy direction over the coming few weeks from major central banks. It’s a big week in Europe, for both macro and markets; the ECB announcement will drive sentiment.”
Earnings season is also gathering steam. Novartis, Ubisoft, Remy Cointreau, Vinci, Telenor, Assa Abloy, Swedbank and Finnair were among those reporting before the bell on Tuesday.
In terms of individual share price movement, London-based fintech Wise jumped 14% after reporting strong first-quarter revenue growth.
French utility EDF jumped 15% after confirmation that the French government will pay 9.7 billion euros ($9.9 billion) to take full control of the debt-laden company.
At the bottom of the index, French manufacturer Alstom fell 2.6% after its quarterly earnings report.
Political instability has also returned to prominence, with the U.K. Conservative Party leadership contest entering its fourth round of ballots among MPs as the remaining candidates seek to succeed Prime Minister Boris Johnson.
The turbulence comes as the U.K. on Tuesday recorded a record 2.8% fall in real wages despite the labor market continuing to run how.
“The number of vacancies fell very slightly on the last reading, which means we may have just crested off the back of the peak and could start to see some normalisation of the labour market,” said Laith Khalaf, head of investment analysis at AJ Bell.
“But the big concern is that the higher wages paid by the private sector will serve to entrench inflation, while the small pay rises witnessed in the public sector in the face of soaring prices will continue to stoke industrial tensions.”
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