European shares rise as cool US inflation data curbs some rate hike fears

By Tharuniyaa Lakshmi, Johann M Cherian ‌and Shashwat Chauhan

July 14 (Reuters) - ​European shares ​ended higher on Tuesday, as a softer-than-expected U.S. inflation reading tempered some bets on a U.S. Federal Reserve interest rate hike, though escalating U.S.-Iran tensions and elevated crude oil prices kept ‌a lid on gains.

The pan-European STOXX 600 index closed 0.2% higher at 642.1 points, recouping ⁠losses after falling as much as 0.9% earlier in the day.

Basic materials jumped 2.4%, as metal prices rallied against a weaker dollar after ‌data showed U.S. consumer inflation slowed ‌more than expected in June as energy prices retreated.

"Overall, the June data paint a fairly favourable picture of inflation, even if one should not over-interpret a single report. We see this as confirmation of our assessment ​that inflation has peaked," Commerzbank economists said in a note.

Traders now see only about a 10% chance of a quarter-percentage-point rate increase at the Fed's July 28 to 29 meeting, versus 35% before the report. However, ⁠odds of at least one 25-basis-point rate hike by year-end remain on the table.

For Europe, traders currently see the European Central Bank hiking rates as early ​as September amid lingering inflation concerns, according to LSEG-compiled data.

Oil prices trended higher on Tuesday after the U.S. re-imposed a naval blockade on Iran and as renewed attacks ​between Washington and Tehran heightened concerns over energy flows through the ‌Strait of Hormuz.

European oil and gas stocks climbed 1.3% tracking higher crude oil prices, while travel and leisure slipped 1.3%.

The move is the latest complication that companies and investors ⁠will have to consider as they gauge the health of the economy and corporate outlook for the rest of the year, just weeks after a Mideast agreement seemed to end hostilities.

Energy giant BP said it expects stronger oil and gas prices, robust ⁠oil trading and higher refining margins to lift second-quarter earnings. Its shares gained 2.3%.

Software-related companies SAP and Capgemini fell 2.8% and 1.6%, ​respectively, amid global weakness in the software sector after U.S. firm IBM warned the AI boom is squeezing software budgets.

Ericsson dropped 12.6% after the Swedish telecom equipment maker's quarterly sales slightly missed estimates and it warned of rising component costs.

The U.S. earnings ‌season kicked into high gear on Tuesday, with big bank earnings powering ahead in the second quarter. European banks ended 0.8% higher, while financial services climbed 1.2%.

Earnings season in ‌Europe also picks up soon with tech giant ASML's results later this week which offer clues on the outlook for ⁠AI-driven demand.

Among others, Evotec plummeted 24.1% after the ‌drug discovery firm cut its 2026 ​outlook.

Mycronic surged 15.3% after the electronics equipment maker raised its full-year guidance on strong AI demand.

(Reporting by Tharuniyaa Lakshmi, Johann M Cherian and Shashwat Chauhan in Bengaluru; Editing by Rashmi Aich and ‌Mrigank Dhaniwala)

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