European stocks rise as investors eye politics, economic data

Rapid ECB rate hikes lowered inflation modestly last year, but the biggest impact is expected only in 2024, the central bank said in an Economic Bulletin article, reaffirming a long-held view that policy works with big lags. Investors are also watching developments around the U.S. debt ceiling talks.

European stocks rose on Monday as investors assessed uncertainties around U.S. debt ceiling talks and a runoff election in Turkey, while awaiting data this week for clues on the state of the global economy.

The pan-European STOXX 600 index climbed 0.2%, with insurance and mining sectors leading gains. While the region's banks rose, shares of Spain's BBVA - among the European banks most exposed to Turkey - slipped 3.2% as the country's presidential election appeared headed for a runoff vote.

The STOXX 600 has largely traded in a tight range this month as investors seek hints on how long the major central banks will keep hiking interest rates to tame inflation. "As tighter financial conditions bite, we expect most major advanced economies to slip into recession and wage and price pressures to cool," said Neil Shearing, group chief economist at Capital Economics.

"Leading indicators are already pointing to a relatively sharp slowdown in the U.S. wage growth. That in turn means that it's too soon to rule out interest rate cuts by the Fed this year – although rate cuts in the UK and euro zone are unlikely until 2024." Data showed Germany's wholesale price index fell slightly in April, the first year-on-year drop since December 2020, while another set showed consumer prices in Sweden eased more than expected in April.

While the U.S. Federal Reserve left the door open for a pause in its monetary tightening cycle, the European Central Bank signalled that there were more rate hikes on the cards. Rapid ECB rate hikes lowered inflation modestly last year, but the biggest impact is expected only in 2024, the central bank said in an Economic Bulletin article, reaffirming a long-held view that policy works with big lags.

Investors are also watching developments around the U.S. debt ceiling talks. U.S. President Joe Biden is expected to meet with congressional leaders on Tuesday for talks on a plan to raise the nation's debt limit and avoid a catastrophic default. AXA rose 2.7% after Europe's second-biggest insurance company said its first-quarter sales rose 2% as growth of its property and casualty policies offset a fall in revenue from savings products in France and Italy.

Siemens Energy AG added 3.2% after the energy group raised its sales outlook and its order backlog hit a record at 102 billion euros ($112.28 billion). ($1 = 0.9084 euros)

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