European Shares Climb on Big Pharma Support as German Inflation Eases

By Bansari Mayur Kamdar and Shreyashi Sanyal

European stocks saw an uptick on Tuesday, propelled by significant gains in large-cap pharmaceutical firms, while Germany reported a slowdown in inflation for the second consecutive month in December.

The pan-European STOXX 600 index climbed by 1.2%, reaching its highest point in almost three weeks.

Shares of Novo Nordisk, AstraZeneca, and Novartis each surged approximately 2.8%, contributing to a 1.8% rise in the European healthcare sector.

JPMorgan forecasted that Europe’s pharmaceutical and biotechnology industry would maintain its strong valuation at least during the period of recessionary concerns, naming Novo Nordisk and AstraZeneca as its top choices while raising the outlook for Novartis.

Recent data indicated that German inflation decreased last month, driven by declining energy costs and a government one-off payment to households for energy bills, falling below analysts’ expectations. However, experts caution that this easing trend may not persist.

Investors are seeking evidence of diminishing price pressures in the region, particularly in light of the European Central Bank’s stringent monetary policy measures.

Franziska Palmas, a senior European economist at Capital Economics, stated, "The sharp drop in German inflation in December was due to temporary energy subsidies, so it is likely to reverse in January."

French Prime Minister Elisabeth Borne noted that inflation is anticipated to peak at the beginning of 2023 before decreasing.

European stocks kicked off the new year on a positive note on Monday, aided by eurozone manufacturing data that indicated the worst may be over as supply chains begin to recover and inflationary pressures subside.

Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, highlighted, "We observed very encouraging PMI figures and are witnessing energy costs for European companies declining due to the exceptionally mild weather we’ve experienced in Europe recently."

Data released on Tuesday also revealed that material shortages in Germany’s manufacturing sector eased further as the year came to a close.

European shares generally outperformed Wall Street, which faced declines in its initial trading day of the year, largely due to drops in tech and energy stocks.

In company-specific news, Deutsche Bank increased by 1.6% following a report that it is on track to meet its restructuring goals and plans to maintain its forecasts through 2025, despite challenges posed by the Ukraine conflict, rising inflation, and recession risks.

Germany’s Brenntag saw a significant rise of 4.8% after announcing it would cease talks regarding a potential acquisition of the smaller U.S. rival Univar Solutions.