European Stocks Rise to Record, Shrugging Off Inflation Scare

(Bloomberg) -- European equities eked out gains, rising to a record high on Wednesday, as investors weighed solid earnings reports against the risks from intensifying inflationary pressures. 

The Stoxx Europe 600 Index climbed 0.2% by the close in London, unfazed by a reading showing that U.S. consumer prices rose at the fastest annual pace since 1990. Media stocks led the gains, with ITV Plc jumping the most since 2009 after the broadcaster said it expects advertising revenue this year to be the highest in its history.

A slump for Adidas AG shares dragged consumer products lower, as the German company said it will probably reach only the lower end of its forecasts for the year. Technology underperformed as Treasury yields rose. 

A robust economic rebound and soaring corporate earnings have propelled the main European equities benchmark into seven consecutive quarters of gains and successive records this year. With inflation gauges in Europe, China and the U.S. hitting multi-year highs, concerns that rising prices will force central banks to tighten policy are increasingly weighing on sentiment. 

“As we come out of the current reporting seasons in the U.S. and Europe, attention will flip back to the macro with two key questions around how transitory inflation proves to be and the degree of the slowdown,” said Nick Nelson, head of European equity strategy at UBS. “Broadly speaking, corporate Europe has been able to pass on the higher input costs to end consumers and protect margins.”

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Among individual movers, Alstom SA jumped the most since March 2020 after reporting cash flow that beat expectations, while Marks & Spencer Group Plc’s stock soared the most in a year after the British retailer raised its profit forecast. 

“Amid a potentially higher macro volatility regime, we expect earnings to remain a tailwind for equities in 2022,” Barclays strategists led by Emmanuel Cau wrote in a note to clients.  

The Stoxx 600 is in a similar situation to the one encountered between mid-August and mid-September, when the index dropped 5%, Oddo strategist Sylvain Goyon said in a note. “A rekindling of health concerns and therefore fears about growth momentum, in addition to questions about inflation,” weigh on the outlook, according to the strategist. 

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