European stocks rose as Covid cases in China eased, while investor attention turned to US inflation data for clues on the path of monetary policy.
The Stoxx Europe 600 Index was up 1.1% by 9:46 a.m. in London, extending a rebound from a four-week long slump that was sparked by concerns over tightening central bank policies, surging commodity prices and fears of a recession.
Consumer products and mining stocks led the gains, while health care stocks underperformed as Roche Holding AG slumped as its cancer medicine billed as a potential blockbuster failed in a study on patients with the most common form of lung cancer. Bayer AG also fell after the Biden administration recommended the US Supreme Court reject a California Roundup appeal.
The European equity benchmark is still down about 13% this year, with investors also worried that strict lockdowns in China to curb the spread of Covid infections would further clog supply chains and dent global economic growth. The Stoxx 600 entered oversold territory earlier this week, which some strategists say sets the stage for a rebound in the index.
“We were oversold and so it’s not surprising to see the market trying to find a bottom,” said Neil Campling, head of TMT research at Mirabaud Equity Research. “Of all the pressures at the moment, the biggest weight has been concerns over the fallout of zero-Covid policies in China, so news today that Covid infections have dropped in Shanghai and Beijing are supportive.”
While the market declines last month have made European stock valuations even more attractive, Morgan Stanley strategists said there’s still room for equities to correct further as the macroeconomic backdrop remains “very difficult.” Strategists at Barclays Plc also said regional investors were turning more defensive amid concerns over slowing growth.
With the Federal Reserve embarking on a rate-hiking cycle this year to quell surging prices, focus later in the day will be on the US data, which are expected to show inflation moderated in April but stayed above 8%.
“While the data is expected to ease, stronger-than-expected inflation figures could put pressure on equities if the market thinks a 75-basis point hike at one meeting is back on the table,” said Victoria Scholar, head of investment at Interactive Investor.
Among other individual movers, Compass Group Plc jumped as much as 12%, the most since November 2020, after the catering company reported better-than-expected results for the first half of the year, increased its full-year revenue forecast and announced a share buyback.