European Stocks Higher; Sentiment Remains Weak

By Peter Nurse - European stock markets edged higher Tuesday, rebounding after a hesitant start to the week but investors remain concerned about rising interest rates and a deteriorating economic outlook.

By 03:45 ET (07:45 GMT), the DAX in Germany traded 1.3% higher, the CAC 40 in France rose 1.3%, and U.K.’s FTSE 100 climbed 0.7%.

European equities gained Tuesday, for the first time in four sessions, but sentiment remained weak with investors concerned that aggressive monetary tightening to combat soaring inflation will push not only Europe but much of the world, into recession.

The European Central Bank is expected to raise interest rates further over its "next several meetings", ECB President Christine Lagarde said on Monday at a hearing of the European Parliament's Committee on Economic and Monetary Affairs, with these hikes designed to dampen demand.

Goldman Sachs downgraded equities to underweight in its global allocation over the next three months, saying rising real yields and the prospect of a recession suggest the rout has further to run.

“Current levels of equity valuations may not fully reflect related risks and might have to decline further to reach a market trough,” analysts at the influential U.S. investment bank said, in a note.

Investors will also be keeping an eye on developments in Italy after Giorgia Meloni’s right-wing coalition won Sunday’s election. The country’s first female leader faces a darkening economic outlook, high debt levels with rising bond yields, and energy price hikes in the wake of Russia’s invasion of Ukraine.

Additionally, the Bank of England will be in focus after Governor Andrew Bailey attempted Monday to boost the beleaguered pound by stating that the bank will raise rates as much as necessary at its next meeting.

In corporate news, SSP Group (LON:SSPG) stock rose 5.2% after the owner of the Upper Crust chain of fast food restaurants said it expects full-year core earnings to be slightly ahead of its prior guidance, as passenger numbers recover to pre-pandemic levels.

Nexi (BIT:NEXII) stock climbed 7.8% after the payments group said it estimated an excess cash generation of around 2.8 billion euros ($2.70 billion) in 2023-2025 which can be used to pursue M&A opportunities or to return capital to shareholders via buyback and dividends.

Oil prices gained Tuesday, rebounding from the lowest levels since January as markets weighed the potential for a reduction in supply even as recessionary concerns, tighter monetary policy, and a rally in the dollar dimmed the outlook for demand.

Major crude producers BP and Chevron said that they had cut production at some offshore oil platforms in the Gulf of Mexico in anticipation of Hurricane Ian.

Additionally, Iraq Oil Minister Ihsan Abdul Jabbar said on Monday the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, were monitoring the oil price situation, raising the possibility of the group cutting output at next week’s meeting.

By 03:45 ET, U.S. crude futures traded 1.9% higher at $78.19 a barrel, while the Brent contract rose 1.9% to $84.41. Both contracts sank by about $2 a barrel on Monday, adding on to Friday’s 5% slump.

Additionally, gold futures rose 0.7% to $1,645.15/oz, while EUR/USD traded 0.5% higher at 0.9655.

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