European Stocks Gain as UBS Rally Outweighs Inflation Concerns

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European equities gained on Thursday as a rally in UBS Group AG, driven by the biggest-ever quarterly profit, outweighed signs of sticky inflation and mixed economic data from China.

The Stoxx Europe 600 was up 0.3% by 9:08 a.m. in London, with UBS surging as much as 7.2% and also lifting the broader European financial services sector. Among other individual movers, Pernod Ricard SA dropped as it expects sales in the US to decline in the first quarter.

Sentiment had earlier been dented by data showing a drop in China’s manufacturing activity for a fifth consecutive month, though an improvement in the new orders gauge encouraged hopes that the worst of the slump is past. Meanwhile, French inflation accelerated in August, adding to evidence of persisting price pressures in the region, just as European Central Bank officials prepare to decide whether to keep raising interest rates.

Italy’s FTSE MIB Index rose 0.3%. Bloomberg reported Prime Minister Giorgia Meloni’s coalition is considering selling minority stakes in selected state owned companies to boost Italy’s public finances. European stocks are set for their worst monthly decline since May amid concerns that interest rates will stay higher for longer, as well as worries about the health of China’s economy. Focus is on inflation data from the euro zone and the US later on Thursday, before the monthly US payrolls report on Friday.

“We think the euro zone CPI will provide significant clues to the European Central Bank as inflation continues to decline, but at a slower pace than expected,” said Liberum strategist Joachim Klement. Sticky inflation would increase bets on the possibility of another ECB rate hike in September, “creating a drag for interest rate-sensitive sectors like real estate and utilities,” Klement added.

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