Europe close: Stocks manage gains after raft of earnings

(Sharecast News) - European equity markets advanced on Wednesday, pushing closer to record territory as investors reacted to fresh data showing eurozone inflation slipping below the European Central Bank's 2% target.

The pan-European Stoxx 600 rose 0.15% to 618.85, supported by broad gains in Paris and London, even as German stocks lagged.

National markets were mixed - France's CAC 40 climbed 1.15% and the UK's FTSE 100 added 0.85%, while Germany's DAX fell 0.52% to 24,619.05.

Sentiment in Europe diverged from Wall Street earlier, where technology shares sold off overnight after an updated chatbot release from AI developer Anthropic aimed at automating legal work.

Swissquote Bank analyst Ipek Ozkardeskaya said the announcement "spooked markets," triggering a sharp sell-off in software companies on fears that new AI tools could rapidly disrupt established business models.

Dan Coatsworth, head of markets at AJ Bell, said the episode marked a shift in how investors are approaching the artificial intelligence theme.

"The dust settled on Wednesday after a dramatic session for tech-related stocks amid new AI disruption," he said.

"A lot of the focus since the AI theme emerged has been on the winners and while there has been attention on potential losers from the proliferation of artificial intelligence, this part of the story has mainly stayed in the background."

He added that changed sharply after the launch of Anthropic's new legal tools, when "a raft of data and software businesses endured double-digit share price losses," as investors reassessed the risk that AI could disintermediate established business models.

Eurozone inflation data helps lift mood

Inflation data underpinned European risk appetite.

Flash estimates from Eurostat showed eurozone annual inflation easing to 1.7% in January from 2% in December, in line with expectations.

Energy prices fell 4.1%, providing the largest downward drag, while services inflation slowed to 3.2% from 3.4%.

Food, alcohol and tobacco prices rose 2.7%.

Core inflation dipped to 2.2% from 2.3%, against forecasts for no change.

Among major economies, inflation rose to 2.1% in Germany but fell sharply in France to 0.4%, and eased to 2.5% in Spain and 1% in Italy.

The figures strengthened dovish arguments ahead of the European Central Bank's rate decision on Thursday, although most economists, including ING, still expected policy to be left unchanged this week.

Survey data pointed to continued but slowing growth in the eurozone economy.

The final HCOB composite PMI output index eased to 51.3 in January from 51.5 in December, missing expectations for no change.

Manufacturing output improved to 50.5 from 48.9, while services activity softened to a four-month low of 51.6.

Germany and Spain remained in expansion, with composite readings of 52.1 and 52.9 respectively, while France stayed in contraction at 49.1.

Hamburg Commercial Bank's Cyrus de la Rubia said services growth was "decent, but the situation is still not comfortable," citing weak hiring and fragile demand.

In the UK, services activity accelerated but labour market pressures persisted.

The S&P Global UK services PMI rose to 54.0 in January from 51.4, the strongest reading since August, but employment fell for a fourth consecutive month and at the fastest pace since October 2024.

S&P Global's Tim Moore said output growth had picked up, supported by improved confidence and new orders, but warned that hiring remained constrained by rising costs and fragile demand.

Patrick Munnelly, market strategy partner at TickMill, said the stronger UK session reflected a combination of sector strength and policy expectations.

"The UK's FTSE 100 reached a record high on Wednesday, bolstered by a strong rally in energy stocks and a significant boost from insurer Beazley," he said, adding that investors were now focused on the Bank of England's policy decision later this week.

While interest rates were expected to fall further this year, Munnelly said the BoE was likely to remain cautious, maintaining rates at 3.75% as it waits for clearer evidence on inflation pressures.

Data from the United States was mixed and added to global caution.

US services PMIs signalled continued expansion in January, while private sector job growth disappointed, with ADP reporting just 22,000 new jobs versus expectations for 45,000.

Mortgage applications fell 8.9% in the latest week despite lower rates, highlighting ongoing strains in the housing market.

In Asia, China's services PMI edged up to 52.3, indicating a modest pickup in activity and a return to job creation.

Novo Nordisk plunges, Novartis in the green

In equities, Novo Nordisk plunged 17.17% after warning that sales and profit growth would slow this year due to lower US prices and the loss of exclusivity for key weight-loss drugs in several markets.

Coatsworth said the sell-off reflected mounting frustration among investors, noting that "Novo Nordisk has fallen behind with efforts to improve the efficacy of its treatments, leaving Eli Lilly to gobble up market share," while drug pricing pressure and rising competition have left the company "in a difficult situation."

He added that the shares were "in the emergency room after crashing 17%, putting even more pressure on management to resuscitate the business."

Elsewhere, UBS slid 6.25% despite beating fourth-quarter profit forecasts, while Spain's Santander fell 3.33% after agreeing to buy US regional lender Webster Bank for $12.2bn.

On the upside, Novartis gained 1.56% after reporting fourth-quarter core earnings per share of $2.03, ahead of expectations, although core net income declined slightly.

Reporting by Josh White for Sharecast.com.