European equities moved modestly higher on Wednesday, remaining close to one-week highs as a steep decline in crude oil prices offered some relief to investors.
The positive influence from cheaper energy was tempered by hawkish signals from the European Central Bank and caution ahead of Nvidia Corp.’s closely watched quarterly results in the US.
The pan-European Stoxx Europe 600 Index gained 0.11%, while Germany’s DAX and France’s CAC 40 traded broadly sideways. London’s commodity-heavy FTSE 100 was held back by weakness among major energy stocks.
Oil falls sharply as Hormuz reopening hopes increase
Brent crude dropped 2.6% to $86.32 a barrel, extending a sharp selloff after falling around 5% in the previous session.
The latest decline followed media reports citing regional mediators that suggested the US and Iran were approaching an interim ceasefire agreement. The reported arrangement would include guarantees allowing commercial vessels to navigate through the Strait of Hormuz without obstruction.
Investor sentiment received additional support after Iran and Oman confirmed the resumption of bilateral discussions aimed at fully reopening the strategically important shipping route.
The prospect of improved energy flows has reduced immediate concerns surrounding global oil supplies and eased some of the inflationary pressure associated with elevated crude prices.
Schnabel says further rate increases will be needed
The more supportive energy backdrop was partly offset by comments from European Central Bank Executive Board member Isabel Schnabel, who warned that interest rates may need to rise further to contain persistent inflation.
In an interview with Bloomberg News published on Wednesday, Schnabel said that “at the current policy rate, inflation is unlikely to return to target over the medium term, and therefore further tightening will be necessary.”
She highlighted the continuing conflict in the Middle East and stronger-than-expected resilience in the euro-area economy as factors presenting upside risks to consumer prices.
Her comments strengthened expectations in money markets that the ECB could deliver another 25-basis-point interest rate increase in September.
Nvidia earnings take centre stage
European investors were also reluctant to make significant moves ahead of Nvidia’s (NASDAQ:NVDA) second-quarter earnings, scheduled for release after the US market closes.
The chipmaker’s results are being closely watched as an important test of global demand for artificial intelligence infrastructure and the sustainability of elevated technology-sector valuations.
The outcome could have particular implications for European semiconductor and technology companies exposed to continued spending on AI hardware.
Among those in focus are semiconductor equipment manufacturer ASML Holding NV (EU:ASML), STMicroelectronics NV (BIT:STMMI) and Infineon Technologies AG (TG:IFX), alongside European industrial automation businesses with exposure to expanding computing infrastructure.
US inflation and Jackson Hole also in focus
Investors are simultaneously maintaining a cautious position ahead of upcoming US PCE inflation figures.
The data could provide further evidence about the direction of inflation and economic growth before central bankers gather for the Jackson Hole Economic Policy Symposium.
With falling oil prices supporting sentiment but monetary policy and Nvidia’s results creating uncertainty, European equities remained confined to relatively modest gains.
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