European Stocks Higher; M&A Talk Helps Sentiment

By Peter Nurse

Investing.com - European stock markets edged higher Tuesday helped by M&A talk, but investors remain cautious ahead of the release of U.S. inflation data that will offer a crucial guide to the Federal Reserve’s interest rate outlook.

By 04:05 ET (08:05 GMT), the DAX in Germany traded 0.3% higher, the CAC 40 in France rose 0.7%, and U.K.’s FTSE 100 climbed 0.2%.

Helping the tone Tuesday was a report from Sky News that French industrial group Schneider Electric (EPA:SCHN) is nearing a deal to take full control of British software maker AVEVA (LON:AVV) for about 3.5 billion pounds ($4.1 billion). Aveva stock rose 3.2% as a result, while Schneider climbed 1%.

UBS (SIX:UBSG) stock also rose 1.5% after the Swiss banking group announced plans to increase its dividend and anticipated its share repurchases will exceed $5 billion for 2022.

On the flip side, Ocado (LON:OCDO) stock slumped over 12% and Marks and Spencer (LON:MKS) dropped around 2% after Ocado Retail, a joint venture between the two companies, warned that it expects to report a decrease in full-year sales, as shoppers rein in spending in response to surging prices.

The U.K. unemployment rate fell to its lowest since 1974 at 3.6% in the three months to July, data showed earlier Tuesday, as more people left the labor market, but the number of people in employment grew by only 40,000 in the May-July period.

German consumer prices climbed to 7.9% annually in August, from 7.5%, which is likely to point to an ugly ZEW economic sentiment survey later in the session. However, that is still likely to be overshadowed by the release of the U.S. data, due at 08:30 ET (12:30 GMT), as the U.S. CPI numbers will frame the Fed's policy meeting next week and set the tone for weeks to come.

Expectations are for a slowdown in headline CPI, thanks to energy and commodity prices backing down from peaks, but for core prices to stay elevated.

The markets are currently factoring in roughly a 90% chance that the Federal Reserve lifts its benchmark interest rate by 75 basis points at next week's policy meeting.

Oil prices rose Tuesday ahead of the release of not only the U.S. inflation data, which will likely impact the dollar, but also the OPEC’s monthly outlook report.

The Organization of Petroleum Exporting Countries and its allies agreed last week to reduce crude production, and traders will look to the report, due later in the session, for more cues on global demand.

Crude hit the lowest level since January last week on concerns over global growth, including in top importer China, where renewed COVID-19 restrictions are impacting activity.

By 03:55 ET, U.S. crude futures traded 0.7% higher at $88.41 a barrel, while the Brent contract rose 0.7% to $94.66.

Additionally, gold futures fell 0.4% to $1,733.95/oz, while EUR/USD traded 0.2% higher at 1.0143.