May 31 (Reuters) – European stocks rose on Friday as weak U.S. inflation data spurred hopes of a Federal Reserve interest rate cut, while expectations of a euro zone rate cut in June remained unchanged despite better-than-expected inflation data.
The pan-European STOXX 600 index (.STOXX) rose 0.3%, led by a gain in utilities (.SX6P) that led a 0.7% gain.
The benchmark index is on track to fall for a second straight week after euro zone yields surged to levels in line with those in the U.S. on concerns that interest rates will remain high for a long time, but the index is likely to post gains this month.
The Commerce Department reported that the core personal consumption expenditures (PCE) price index rose 0.2% in April, potentially moving inflation slightly closer to the Fed's 2% target. Economists had expected the core PCE index to rise 0.3% in April.
After the report was released, traders estimated the chances of a rate cut by September to be about 51%, compared with about 49% before the report.
“This is a good report for the market, with both the headline and core numbers looking broadly in line with expectations,” said Art Hogan, chief market strategist at B. Riley Wealth.
Meanwhile, euro zone inflation rose in May, suggesting the European Central Bank still faces a slow and uncertain road to reining in prices. A Reuters poll shows the ECB is all but certain to cut interest rates in June next week.
Yields on German bunds, the euro zone's benchmark government bond, rose following the inflation data but remained near six-month highs, last trading at 2.661%.
German retail sales fell more than expected in April, while French consumer prices rose 2.7% year-on-year in May, better than expected due to higher energy prices.
Swedish defence equipment maker Saab (SAABb.ST) rose 5.3 percent, the biggest gainer on the benchmark index, after winning orders worth 7.7 billion crowns ($727 million).
In corporate news, British sportswear retailer JD Sports Fashion (JD.L) fell 6.0% to become the lowest on the STOXX 600 after the company kept its profit outlook for the 2024/25 financial year unchanged.
Telecom Italia (TLIT.MI) also ranked at the bottom of the index, with shares down 2.7 percent after U.S. investment firm KKR (KKR.N) won unconditional EU antitrust approval for its 22 billion euro ($24 billion) takeover of the telecom company's fixed-line network.
IT services company Capgemini (CAPP.PA) fell 4.9 percent after JPMorgan downgraded it to neutral from overweight.
Energy company Centrica Inc (CNA.L) rose 3.8 percent after RBC upgraded the company to “outperform” from “sector perform.”
Reporting by Shubham Batra and Purvi Agarwal in Bengaluru; Editing by Sohini Goswami and Tasim Zahid
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