European stocks edge higher, helped by sharp drop in U.K. inflation data

Investing.com – European stock markets stabilized Wednesday, with investors digesting better than expected U.K. inflation numbers, more corporate earnings as well as China’s deteriorating economic outlook.

At 03:45 ET (07:45 GMT), the index in Germany traded 0.2% higher, the in France climbed 0.3%, while the in the U.K. traded largely flat.

U.K. inflation remains high despite fall

The latest economic release in Europe saw the U.K.’s annual headline drop to 6.8% in July from 7.9% the prior month, with falling gas and electricity prices the biggest driver behind the drop in inflation, while food price inflation also eased.

While this is undoubtedly welcome news as far as the Bank of England is concerned, this still leaves inflation more than three times higher than its 2% medium-term target.

Additionally, data released Tuesday showed that in Britain rose 7.8% in June, a new record growth rate, adding to long-term inflation pressures even after 14 back-to-back increases in interest rates.

There are also important data due in the eurozone, with preliminary second-quarter figures expected to show flimsy growth of 0.2% and data likely to be negative.

China’s economic worries pile up

Sentiment had been hit earlier in the day by fresh signs of economic decline in China, the world’s second-largest economy, a major regional growth driver and a substantial market for many of Europe’s largest companies.

Data released overnight showed that China’s fell in June for the first time this year, providing more evidence of the pressures facing the country’s important property sector.

This followed Chinese and growing much less than expected in July, while data released last week showed that the world’s second-largest economy sank into disinflation during July.

At the same time, U.S. soared in July, pointing to more potential upside pressure for inflation, presenting a hawkish outlook for interest rates in the world’s largest economy, especially after Friday’s stronger-than-expected . 

Banking sector in focus

European banking sector has seen some losses Wednesday, following overnight weakness on Wall Street as credit rating agency Fitch warned it may have to downgrade credit ratings of dozens of banks, including JPMorgan Chase (NYSE:). The mining sector has also struggled on the back of China’s economic weakness, given the Asian giant is a major source of demand.

Elsewhere, Aviva (LON:) stock rose 1.9% after the insurer beat its financial targets after seeing a 58% jump in health insurance sales as customers looked for alternatives to long NHS waiting lists.

Admiral (LON:) stock soared almost 7% after the British motor and home insurer posted a rise in its first-half pretax profit. Still, the company cut its dividend by 15% as it warned of a “backdrop of continuing elevated levels of claims inflation.”

Crude gains after hefty U.S. inventories draw

Oil prices bounced Wednesday after early losses, as traders weighed concerns over China’s weakening economy against a bigger-than-expected draw in U.S. inventories.

Data from the showed that U.S. oil stockpiles saw a much bigger-than-expected 6.2 million barrel draw last week, and official inventory data, from the , is due later on Wednesday, for confirmation.

By 03:45 ET, the futures traded 0.1% higher at $81.08 a barrel, while the contract climbed 0.1% to $85.00. Both benchmarks had weakened to their lowest since Aug. 8 on Tuesday.

Additionally, rose 0.1% to $1,935.85/oz, while traded 0.2% higher at 1.0924.