Europe midday: Stoxx rallies on EZ inflation print

(Sharecast News) - European shares swung into positive territory as eurozone inflation fell below 2% for the first time in more than three years, offsetting worries over the impact of Israel's invasion of Lebanon amid fears of a major escalation of conflict in the Middle East. The pan-regional Stoxx 600 index was up 0.23% to 524.08 as the benchmark index rallied from morning lows. There was an 8% surge in Chinese markets overnight on continued support for the government's recently-announced stimulus measures. US markets also closed higher with the Dow Jones and S&P indices hitting record highs.

Israeli troops crossed the border in southern Lebanon and continued shelling areas nearby along with airstrikes on the capital, Beirut. The invasion is an escalation after the assassination of Hezbollah leader Hassan Nasrallah on Friday.

In economic news, eurozone inflation fell below the European Central Bank's 2% target for the first time since 2021, boosting hopes of further interest rate cuts in the single currency bloc.

A flash estimate from European Union statistics body Eurostat said annual inflation across the euro area was 1.8% in September 2024, down from 2.2% in August and its lowest since April 2021.

A sharp fall in energy costs was the main driver, with prices down 6%, meaning they were lower than September last year. Services inflation edged down to 4% from 4.1% in August, while food, alcohol & tobacco inflation rose to 2.4% from 2.3%.

"We think that the ECB is slightly more likely than not to proceed with a rate cut at the October meeting. But with services inflation remaining stubbornly high, the decision to cut or stay put is on a knife edge," said Rory Fennessy, senior economist at Oxford Economics.

However, the state of manufacturing in the eurozone remained a concern as a survey show the sector's downturn deepened in September with activity contracting at its sharpest rate this year.

Final estimates from S&P Global and Hamburg Commercial Bank (HCOB) confirmed the manufacturing purchasing managers' index (PMI) showed a print of 45 for last month, the 27th straight month below the 50-point level which separates contraction and growth.

While the PMI was revised slightly higher than the initial estimate of 44.8 released last week, this was still down from 45.8 over the preceding three months and the worst level since December 2023.

Crude prices fell to almost $71 a barrel despite the risks posed by a wider conflict in a major oil producing region.

In equity news, shares in Covestro jumped as Abu Dhabi state oil giant ADNOC said it had agreed to buy the German chemicals producer for €14.7bn.

Greggs fell despite the UK bakery chain holding guidance. However, news that top-line growth was slowing against tougher comparable periods last year did not impress investors.

Reporting by Frank Prenesti for Sharecast.com