European shares near record high as earnings absorb tech volatility
European shares near record high as earnings absorb tech volatility
European shares advanced on Wednesday, pushing the benchmark STOXX 600 within a whisker of a record high, as a resilient corporate earnings season and relief over strong U.S. artificial intelligence demand offset lingering anxiety over a hawkish repricing of Federal Reserve interest-rate expectations.
The pan-European STOXX 600 index rose 0.3%, extending a durable rally as investors cheered a highly constructive third-quarter earnings season.
Germany’s DAX rose 0.4%, while France’s CAC 40 was up 0.3%. London’s FTSE 100 rose 0.4%.
With a vast majority of the index constituents having now reported, solid corporate balance sheets have largely absorbed the recent volatility in global bond and energy markets, giving institutional allocators the confidence to keep cash deployed in continental equities.
The primary engine for Wednesday’s European advance was a distinct relief rally across the technology sector, triggered by robust overnight earnings from U.S. cloud computing provider CoreWeave.
Viewed as a critical barometer for the massive capital expenditures required to sustain the global AI build-out, CoreWeave had recently found itself at the epicenter of investor anxiety regarding AI-related debt and infrastructure sustainability.
However, the company reported better-than-expected revenue and continued strong demand for its cloud services, directly alleviating fears of an imminent spending slowdown.
European semiconductor and enterprise software franchises gained in sympathy, with BE Semiconductor and ASM International jumping over 4% each, while ASML and STMircoelectronics gaining over 3% each.
Bucking the trend, CSG dropped 23% after cutting its full-year margins’ forecast.
Forterra fell 6.1% after the UK building products manufacturer cut its full-year profit outlook.
Markets digest hot U.S. Inflation and 50-bps whispers
Trading desks spent the session digesting the fallout from Tuesday’s hotter-than-expected U.S. Consumer Price Index (CPI) report.
The robust inflation data definitively shattered hopes for an immediate easing of transatlantic financial conditions, firmly cementing market expectations for at least a 25-basis-point rate hike by the Federal Reserve at its December meeting.
Furthermore, the combination of sticky core consumer prices and last week’s blowout U.S. jobs report has prompted a subset of fixed-income allocators to question whether the U.S. central bank might be forced to consider a bumper 50-basis-point increase to cool resilient domestic demand.
"The speed of that repricing is creating fresh uncertainty for equities, particularly as higher yields increase borrowing costs and put pressure on valuations," said Daniela Hathorn, senior market analyst at Capital.com.
Oil bounces as ECB’s Lagarde takes the Stage
Crude oil prices rose on Wednesday, bouncing from the previous session’s two-month lows. Traders swung between optimism for a diplomatic de-escalation in the conflict involving the U.S., Israel, and Iran, and renewed concerns over physical supply disruptions following fresh attacks on commercial shipping in the Strait of Hormuz.
European Central Bank President Christine Lagarde is scheduled to deliver remarks later in the day. Bond and equity desks will parse her comments closely for cues on how the ECB plans to navigate the widening divergence between a stalling European economy, fluctuating energy premiums, and accelerating U.S. inflation.