The STOXX Europe 600 closed stronger on Thursday following the publication of U.S. September inflation data. The index gained 0.9 percent during closing despite fluctuating during the day. Throughout the previous six days, it had recorded consecutive losses, which accumulated to 4.3 percent.
The most consequential contributor to the STOXX index was the financial sector. The tech sector went up by 0.3 percent, rebounding from its lowest point since May 2020 in days before. The energy and manufacturing industries also contributed to the gain.
The stocks of two chip producers, Infineon and ASML, gained 0.9 percent and three percent, respectively. Norks Hydro, a Norwegian aluminum company, also saw a 6.7 percent increase in the stock market following news that the U.S. was considering restricting Russian aluminum supply.
Oanda senior market analyst Craig Erlam explained that “technical buying” was the reason for the rebound.
"The fact that (stocks) have rebounded and rebounded as strongly as they have suggests that this was more of a technical buying, rather than a fundamentally-driven move," Erlam said.
"We've seen dip buyers jump back in and test that theory that maybe this is a bit of a bottom for the market. I'm not sure if it's going to pay off because that's really not the kind of inflation report the market wanted to see.”
The U.S. annual inflation in September posted an 8.2 percent rate, slightly above the projected rate of 8.1 percent. This figure, paired with the decline in the unemployment rate in the country throughout September, increased the likelihood of another 75 basis point increase in interest rate by the Federal Reserve.
This Friday, a number of American companies and major banks will start to release third-quarter earnings reports. The information will provide insight into how businesses in the U.S. adjust to the rising prices as well as notes on how these businesses mitigate the risks of a potential recession.
TD Ameritrade chief trading strategist Shawn Cruz said that Domino's Pizza and Walgreens Boots Alliance were among companies that had shown “upbeat results” amid the economic volatility. Most industries, however, are projected to see declines in earnings.
Effects of U.S. inflation on U.K. economy
The U.S. September consumer price index (CPI) was at 6.6 percent or the highest since 1982, exceeding economists' projections earlier this month. This resulted in the surge of the U.S. greenback, which has grown 15 percent this year against other currencies, including the U.K. sterling.
“There aren’t likely to be many chinks in the dollar armor any time soon, with the strength of the greenback continuing to cause continued inflationary pressures in other economies, as imports priced in dollars remain more expensive,” Hargreaves Lansdown senior analyst Susannah Streeter said.
Streeter added that there was a potential for the sterling to continue its slip because “political and fiscal pressures also continue to weigh it down.”
The U.S. inflation reportedly also affected the U.K. equity markets, with government bonds spiking in price on Thursday. The 10-year bond yields in Germany also suffered after the release of U.S. recent inflation data.
Analysts have said that the combination of the weakening sterling, simultaneous interest rate hikes and fast-paced inflation will “derail” the British government’s plan for economic growth. It can potentially cancel the current administration’s plan for tax cuts, which are expected to be effective by next year.