Europe midday: Shares hold gains ahead despite surprise German GDP fall

(Sharecast News) - European markets were higher on Tuesday amid another earnings dump as investors also looked ahead to rate decisions from the US and UK, while Germany recorded a surprise economic contraction in the second quarter. The pan-regional Stoxx 600 index was up 0.47% at 514. Britain's FTSE 100 underperformed with a 0.19% decline.

Investors will be closely watching the US Federal Reserve's July meeting - which concludes on Wednesday - with expectations that rates will be kept on hold one more time before a cut is implemented.

Meanwhile on Thursday the Bank of England's monetary policy committee will meet on Thursday, with no indication on whether it will cut or hold.

On the economic front, German gross domestic product unexpectedly shrank in the second quarter as the uneven recovery of Europe's largest economy continued.

GDP slipped 0.1% over the three months to June when adjusted for price, seasonal and calendar effects, pulling back after a 0.2% expansion in the first quarter.

There was also data from the eurozone showing economic activity was stronger than anticipated in the second quarter, as upside surprises to GDP growth in Spain and France offset an unexpected contraction in Germany.

Eurozone GDP expanded by 0.3% in the three months to June, in line with the 0.3% growth registered in the first quarter and ahead of the 0.2% increase expected by economists.

This was the second straight quarter of economic expansion across the single-currency region following two consecutive quarters of stagnation at the end of last year.

"This morning saw the Spanish kick off an inflation-heavy period that culminates in tomorrow's eurozone CPI release. With Spanish inflation falling by -0.5% in July, we saw the country move one step closer to a return to target (annual CPI fell to 2.8%)," said Scope Markets chief analyst Joshua Mahony.

"However, the early signs from the German regional inflation data provided less grounds for optimism, with North Rhine, Westphalia, Saxony, Baden Wuerttemberg, Brandenburg, and Hesse all seeing inflation rise or remain flat."

"The trajectory of the German economy remains a concern for Europe, with the manufacturing powerhouse seeing second quarter growth fall back into negative territory. Fortunately, things are more stable for the eurozone as a whole, with the latest GDP figure beating expectations to post a second consecutive 0.3% reading in Q2."

"Crucially, we also saw a sharp decline in eurozone consumer inflation expectations, with the fall into a seven-month low helping to build a narrative that should embolden the ECB to cut rates in September."

In equity news, shares in UK wealth manager St James's Place surged 25% after the company revealed plans to cut millions in costs.

Shares in Standard Chartered jumped as the Asia-focused bank announced its biggest-ever share buyback, of $1.5bn, and raised its outlook in half-year results.

Drinks maker Diageo slumped as Latin American and Caribbean sales fell. Organic operating profit fell by 4.8% to $304m, of which $302m was attributable to the two regions.

Reported net sales declined 1.4% to $20.3bn, it said, owing to an unfavourable foreign exchange impact and organic net sales decline, partially offset by hyperinflation adjustments.

Reporting by Frank Prenesti for Sharecast.com