Europe midday: Shares rally ahead of Jackson Hole; WoS tanks on Rolex deal

(Sharecast News) - European shares rallied after a tepid start on Friday as investors awaited the speeches by Federal Reserve chair Jerome Powell and ECB president Christine Lagarde at the Jackson Hole symposium in Wyoming for any clues on the future path of interest rates. The pan-regional Stoxx 600 index rebounded at midday to be 0.41% with all major bourses higher. Asian and US markets were weaker overnight as a rally driven by tech darling Nvidia after stellar results ran out of steam and fears that more rate rises may be needed to stem inflation came to the fore.

"Comments from Fed president Susan Collins have already laid the ground for the fact rate increases may be needed to stifle inflation, with more work to be done to get it in line with targets within a reasonable timeframe," said Hargreaves Lansdown analyst Sophie Lund-Yates.

Meanwhile, European Central Bank President Christine Lagarde is also under pressure to pause rate hikes after a raft of weak PMI data and stagnant growth in major economies such as France and Germany.

"The latest PMIs confirmed the eurozone economy is heading towards a period of sluggish growth, which now makes any hawkish statement a harder sell," said ING analysts.

"At the same time, Lagarde and her ECB colleagues are probably aware that the window for one last hike to curb the still non-negligible service inflation is closing fast. In other words, if the ECB pauses in September, it may well not get a chance to hike any more given the deteriorating economic outlook."

In economic news, Germany's economy flatlined in the second quarter of 2023, according to new data released on Friday which was unrevised from preliminary estimates.

The country's statistics office confirmed earlier data that showed that gross domestic product failed to expand between April and June, a slight improvement after two consecutive quarters of contraction - a technical recession. The data was in line with economists' predictions.

GDP declined by 0.1% and 0.4% in the first quarter of 2023 and fourth quarter of 2022, respectively.

"The question remains whether technically speaking a stagnation after two quarters of contraction is actually the end of a technical recession or a prolongation," said ING's global head of macro, Carsten Brzeski.

On a year-on-year basis, GDP declined by 0.2% after a 0.5% contraction in the first quarter.

Adding to the misery was survey data showing German business sentiment deteriorated further in August, according to the Ifo Institute. Its business climate index fell to 85.7 from a revised 87.4 in July, coming in below consensus expectations of 86.7.

The current assessment index declined to 89.0 from 91.4, while the expectations gauge dipped by one point to 82.6.

Shares in Watches of Switzerland Group plunged by more than a quarter on Friday morning, heading for the company's worst day ever, after luxury watchmaker Rolex announced a deal to buy watch retailer Bucherer.

In a statement, Watches of Switzerland insisted that the acquisition was solely about succession planning for Rolex - which is breaking with its modus operandi of acting solely as a manufacturer - and did not represent a "strategic move" into the retail market.

Reporting by Frank Prenesti for Sharecast.com