European shares climb on China stimulus hopes; inflation data in focus

European shares rose on Friday as lacklustre data on China‘s factory activity spurred hopes of more policy stimulus, while investors awaited key inflation readings for more clues on the direction of global interest rates.

The pan-European STOXX 600 index was up 0.7% by 0825 GMT.

The index was set for muted returns at the end of the quarter, with mounting evidence of China’s weak post-COVID recovery and concerns about higher-for-longer global interest rates, having stalled a rally in equities that began early this year.

Banks are the biggest gainers among major European sectors this quarter, up 6%, while miners have been a big drag, down 9% as worries around top metals consumer China weighed heavily on metal prices.

On a monthly basis, the index is on track for gains of 1.7% after sharp declines in May, while it is up 8% in the first six months of the year.

Investors are now awaiting U.S. Personal Consumption Expenditure (PCE) data for May as well as preliminary figures on euro zone inflation later in the day after recent hawkish signals from major central bankers cemented expectations of more rate hikes ahead.

A raft of solid U.S. data, including on the labor market has added to bets that the Fed will need to do more to tame inflation.

“The general message from central bankers is that the fight against inflation is not over,” said Hubert de Barochez, markets economist at Capital Economics.

“Maybe investors don’t fear it as much as we do, but despite the recent data, the growth will disappoint over the second half of the year, and we expect a recession in the US.”

Among European sectors, miners gained 0.8%, tracking metal prices higher as a decline in China’s factory activity boosted expectations of more economic stimulus from the country.

Energy firms were the top sectoral gainers, up 1.2%, boosted by firm crude prices.

The real estate sector rose 0.4%, buoyed by 3.9% gains in shares of LEG Immobilien after the German firm raised its 2023 outlook.

On the flip side, new rules from the Dutch government restricting exports of certain advanced semiconductor equipment weighed on shares of chipmakers, with ASML, Europe’s largest technology company, down 2.4%.

German unemployment rose more than expected in June, while French inflation eased this month, data showed on Friday.

Shares in Adidas and Puma, which had been falling earlier on Nike’s dour forecast, reversed course to rise 1.8% and 2.0%, respectively.