Europe close: Lagarde sparks late rally to send Stoxx 600 to one-month high

(Sharecast News) - European stocks rallied in afternoon trade to reach their highest levels in a month after Christine Lagarde said that inflation risks across the eurozone were "contained".

The head of the European Central Bank said in a speech in Finland that price pressures are unlikely to move from the 2% target despite ongoing trade uncertainties.

"Because trade shocks are not creating new inflationary pressures, we are not confronted with the classic policy trade-off where the central bank faces stalling growth and rising inflation," she said.

After a subdued start with markets searching for direction for most of the sessions, stocks across the continent jumped before the closing bell, with the Stoxx 600 index finishing 0.5% higher at 558.18. The last time the index closed higher was 28 August at 558.82, within a whisker of its all-time record close of 563.13 reached in March.

European investors were largely shrugging off a weak start on Wall Street as fears about a possible US government shutdown dampened American stocks. An eleventh-hour meeting between Donald Trump and Democratic leaders failed to result in progress ahead of the midnight deadline, with a shutdown likely as both sides traded public insults about the negotiations.

Markets were also having to contend with a barrage of economic data on Tuesday, which came in mixed.

UK GDP was estimated to have grown by 0.3% in the second quarter, following an unrevised 0.7% uplift in the first quarter and in line with market forecasts. Year-on-year, GDP rose by 1.4%, ahead of forecasts for a 1.2% increase.

German retail sales unexpectedly fell 0.2% in August following a revised 0.5% decline in July, Destatis said, missing the consensus estimate for a 0.5% increase. Meanwhile, German unemployment rose by 14,000 this month to reach 2.98m in September, higher than the 8,000 increase expected.

Over in France, the annual rate of inflation picked up to 1.1% in September, according to preliminary estimates, up from 0.8% in July but under the 1.3% rate expected by the market.

Further afield, the RatingDog China manufacturing purchasing managers' index hit a six-month high of 51.2 in September, up from 50.5 in August and comfortably ahead of the 50.3 consensus forecast.

Market movers

Shares in Asos dropped 4% after the London-listed online retailer said full-year revenues had come in "slightly below" market expectations and adjusted underlying earnings were at the bottom end of guidance.

Pandora fell 3% after the Danish jewellery company announced that current boss Alexander Lacik is leaving after nearly seven years, to be replaced by CMO Berta de Pablos-Barbier.

Deutsche Lufthansa was also 7% lower, a day after its parent company Lufthansa Group announced 4,000 job cuts over the coming years to improve profitability. The airline is now also facing a pilot strike with union members planning to walk out over a pensions dispute.