European stocks rise as investors bet on strong US corporate earnings

European stocks rose at the open on Thursday as investors cheered the prospect of strong US corporate earnings and shrugged off the threat of further interest rate rises to combat inflation.

The region-wide Stoxx 600 gained 0.4 per cent, while Germany’s Dax index rose 0.6 per cent. France’s Cac 40 was up 0.7 per cent. The FTSE 100 rose 0.3 per cent.

Investors cheered stronger than expected US retail sales that are expected to boost corporate earnings which raised the prospect that the US economy would avoid a recession in the first quarter.

Retail sales climbed 3 per cent, more than the 1.8 per cent increase anticipated by economists polled by Reuters. Overnight the S&P 500 rose 0.3 per cent while the Nasdaq Composite added 0.9 per cent.

“The US market was strong yesterday so this is partly a carry-over,” said Neil Shearing, group chief economist at Capital Economics. “Investors are focusing on the retail and industrial data as it’s good news for earnings, rather than worry about the central bank response.”

US futures ticked upwards, with contracts tracking the blue-chip S&P 500 gaining 0.08 per cent, and the tech-heavy Nasdaq 100 up 0.2 per cent.

However the data has further convinced economists that the major central banks will press on with more interest rate increases to stamp out persistent inflation.

Yields on two-year US Treasury notes, which are more sensitive to interest rate changes, fell 0.04 percentage points to 4.58 per cent, while that on 10-year notes dropped 0.03 percentage points to 3.8 per cent. Yields rise when bond prices fall.

The dollar index, which measures the greenback against a basket of peer currencies, was down 0.3 per cent.

European Central Bank president Christine Lagarde addressed EU lawmakers on Wednesday and stressed the need for more interest rate rises. The euro gained 0.1 per cent against the dollar.

Traders are also expecting US producer price inflation figures later on Thursday. The headline number is expected to have risen 5.5 per cent in January, down from a 6.2 per cent year-on-year increase in December.

The monthly results dropped 0.5 per cent in December, the largest monthly decline since April 2020, fuelling speculation that inflation may be cooling off.

Brent crude, the international benchmark, was flat at $85.43 a barrel and WTI, the US benchmark, gained 0.2 per cent to $78.7 a barrel.

Hong Kong’s Hang Seng index gained 0.8 per cent, while China’s CSI 300 lost 0.7 per cent.