European stocks edge higher on hopes of interest rate peak

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European stocks made small gains on Tuesday with traders hopeful that central banks would not push global economies into recession by raising interest rates too far in their battle against inflation.

Europe’s region-wide Stoxx 600 added 0.2 per cent, while France’s Cac 40 and Germany’s Dax rose 0.1 per cent. Trading volumes were expected to stay thin while US markets were closed for the Independence Day holiday.

The moves echoed the direction in Asia, where stocks rose after the Reserve Bank of Australia opted to hold interest rates steady at 4.1 per cent and watch for the impact of previous rate rises on the economy.

Policymakers were guided by a faster-than-expected decline in the country’s annual inflation rate, which dropped to a 13-month low of 5.6 per cent in May from 6.8 per cent a month earlier. The move encouraged investors who feared central banks would overtighten their monetary policy in an effort to stamp out persistent price pressures.

Australia’s S&P/ASX 200 stock index rose 0.5 per cent after the announcement, while China’s CSI 300 added 0.2 per cent and Hong Kong’s Hang Seng was up 0.6 per cent. Japan’s Topix was the region’s outlier, down 0.6 per cent.

Oil prices rose on Tuesday after two of the world’s biggest producers, Saudi Arabia and Russia, said they would cut supply in August.

Brent crude, the international benchmark, added 0.8 per cent to trade at $75.27 per barrel, while US marker West Texas Intermediate rose 0.9 per cent to $70.42.

Germany’s Dax registered its biggest losses in the energy and basic materials sectors, while the Stoxx 600 Basic Resources index dropped 0.5 per cent.

Meanwhile, new data on Tuesday showed German exports decreased 0.1 per cent in the month to May, as high interest rates continued to weigh on the country’s key trading partners. The reading fell well below analysts’ expectations of a 0.3 per cent rise.

“Trade is no longer the strong resilient growth driver of the German economy that it used to be but rather a drag,” said Carsten Brzeski, global head of macro at ING. “The expected slowdown of the US economy . . . high inflation and high uncertainty will clearly have an impact on German exports.”

A separate survey by the Ifo economic research institute showed Germany’s business climate in the chemical industry worsened significantly, with the indicator for the sector sliding to minus 28.3 points in June from minus 12.5 in May.

Investors are set to take their next trading cues from new economic data this week, with the widely anticipated US employment report on Friday expected to offer an insight into the Federal Reserve’s next policy move.