European shares climb on oil relief, shaking off hot U.S. CPI print

European equities surged on Tuesday, with the STOXX 600 index climbing 0.3% to approach a potential new record high. The market's rise was driven by a drop in global crude oil prices and a revenue boost for chipmaker Infineon, which helped investors process a hotter-than-expected U.S. inflation report. This report confirmed that the Federal Reserve would likely raise interest rates in December.

Spain's IBEX 35 led the regional increase, jumping 1.1%. Germany's DAX added 0.5%, France's CAC 40 rose 0.6%, and Italy's FTSE MIB climbed 0.7%. Meanwhile, London's FTSE 100 declined 0.3% due to a heavy presence of energy companies whose stocks suffered from falling oil prices. U.S. headline inflation increased by 0.4% month-over-month, surpassing economists' expectations of 0.3%.

Core CPI, which excludes food and energy components, also rose faster than anticipated at 0.3% month-over-month, compared to the expected 0.2%. This robust inflation data, following a surprise job report from the U.S., compelled fixed-income markets to quickly reprice the Federal Reserve's year-end interest rate path. Traders now believe there is an 84% chance of a U.S. rate hike during the December meeting, up from 74% a week ago, according to the CME FedWatch tool.

Despite the hot inflation figures, European equity investors chose to overlook the hawkish signals from the transatlantic economies, finding solace in the energy sector instead. The main fundamental advantage supporting the STOXX 600 was the continuous deflationary trend in global energy markets. Crude oil futures fell 3% on the day, reaching $89.31 a barrel, their lowest level since early September and well below the $100 mark.

The recent decline in energy markets is attributed to growing investor confidence in potential diplomatic talks between the United States and Iran, which reduces the risk of immediate military escalation in the Persian Gulf. This energy-driven relief alleviates acute margin pressures on European corporate balance sheets, allowing investors to pursue equity highs even as the regional economy stagnates.

Among earnings moves, German chipmaker Infineon's shares jumped 6% after the company projected revenue growth of over 20%. This strong guidance bolstered European tech sentiment ahead of a crucial week for the global artificial intelligence trade, following a politically driven sell-off in the semiconductor and software sectors last week.