Europe midday: Inflation jitters hit stocks as rate cut hopes wobble

(Sharecast News) - European stock markets continued in gloomy mood on Wednesday, extending losses from the previous day's sell-off. The benchmark Stoxx 600 was down 0.64% in early deals to 515.71 with all regional bourses lower after downbeat sessions in the US and Asia overnight. A higher-than-expected inflation reading in Australia also hit sentiment.

Investors are awaiting the core Personal Consumption Expenditures Price Index reading from the US at the end of the week. This is the Federal Reserve's preferred inflation measure and will provide guidance on whether policymakers will hold off on cutting rates for a while longer. Eurozone inflation is also due on Friday.

In Germany, two key regional regions - North Rhine Westphalia and Bavaria - both reported CPI rises of 0.2% ahead of the national figure later in the day.

"All eyes are on a series of Eurozone inflation updates that are due to hit the ground starting from today," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"Right now, the divergence between a more hawkish Fed - that debates the necessity of another hike - and the European Central Bank (ECB) - that debates the possibility of back-to-back rate cuts in summer - remain supportive of a downside correction in the EURUSD.

"The major risk to the bearish euro outlook is Friday's US core PCE data. If the April rise comes in at 0.2% on a monthly basis - as pencilled in by analysts on a Bloomberg survey - it would be the smallest advance for the measure for this year and could help temper the Fed hawks."

On the economics front, consumer confidence in Germany rose to its highest reading in more than two years, according to the latest Consumer Climate Indicator from GfK and the Nuremberg Institute for Market Decisions (NIM).

The headline index rose for the fourth straight month, with the indicator for June increasing to -20.9 points, from a revised -24.0 the month before.

This was the highest reading since April 2022 and ahead of the consensus forecast for a smaller improvement to -22.5.

In equity news, Royal Mail owner International Distribution Services rose 3% after accepting a £5.3bn takeover deal from Czech billionaire Daniel Kretinsky.

Mining giant Anglo American fell after BHP Group asked for more time for talks on its proposed takeover.

BP and Shell both gained as oil prices rose in response to more attacks on shipping in the Red Sea by Houthi militants backed by Iran.

Reporting by Frank Prenesti for Sharecast.com