April 17, 2024

European Shares Climb Higher On Commodity And Auto Boost

On Thursday, European shares got a boost from chipmakers and economy-sensitive stocks, while investors were waiting for the minutes of the European Central Bank meeting last month to get some clues about future rate hikes. Chipmakers got a lift due to the upbeat results forecast from Samsung Electronics in South Korea.

Stocks were up

There was a 1.4% rise in the pan-European STOXX 600 index, as it continued to build on a strong rise recorded in the last session after a Norwegian strike on oil and gas fields finally came to an end. There were gains recorded in basic resources and automobile stocks of about 3.2% and 4.6%, respectively, as they were leading gains amongst European equities.

A 6.8% rise in Tenaris’ stocks was also recorded, as Jeffries upgraded its stock rating from ‘hold’ to ‘buy’. This ended up giving a boost to the gas and oil sub-index in Europe. However, there has been a fall of 15.3% in the benchmark STOXX 600 index for this year.

As for other stocks, there was a gain recorded in semiconductor companies between 1.8% and 3.1%, after Samsung Electronics posted its highest profit for the second quarter since 2018 because of higher sales of memory chips to companies once the economy reopened. These included companies like ASM International, STMicroelectronics, ASML Holding, and BE Semiconductors.

Inflation and recession worries

This year, trading has been quite volatile, as investors are trying to decide if market valuations are a good investment after there was a sharp sell-off. This had occurred due to rising concerns that the aggressive hikes in the interest rates would result in an economic recession globally.

The FTSE 250 index in the UK, which is domestically focused, also reached a high in the trading session on Thursday, as it was buoyed by media reports of Boris Johnson quitting his position as the country’s prime minister.

Market analysts said that the most important question to ask at this point was whether inflation would cool first, or if a recession would be needed for bringing down the stubborn inflation. This is the major dilemma that the market is trying to resolve for now.

They added that the valuation selloff that had occurred in the market had mostly been due to bond yields being higher, but that was over. Analysts said that the major issue now was that if the economy does go into recession, then profits would be downgraded significantly.

Earnings season

The earnings season for the second quarter is just around the corner, which will also dictate the course of the market in the future. A 19.2% increase in the earnings of STOXX-600 companies is expected in the second quarter. If the energy sector is taken out, the earnings are expected to record gains of about 2% year-on-year.

Investors’ main focus is the minutes of the June meeting of the ECB. There is another meeting scheduled for later this month in which a 25 basis points increase in the interest rate is expected.

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