The continent-wide STOXX 600 index was 0.6% higher, with the automobiles and parts sector, which has lagged for most of the year, among top gainers with a 1.1% rise

European stocks settled higher on Wednesday, bouncing from losses in the previous session as investors focussed on upcoming interest rate cuts and a crucial U.S. inflation report later this week.

The continent-wide STOXX 600 index was 0.6% higher, with the automobiles and parts sector, which has lagged for most of the year, among top gainers with a 1.1% rise.

Continental added 7.2% after the German automotive supplier forecast profitability in its automotive business to improve in the third quarter.

Germany’s DAX index outperformed the STOXX with a 1% rise.

On the flipside, banks underperformed as Dutch lender ING declined 2.5% after Deutsche Bank downgraded the stock to “hold”, calling 2024 a peak for capital returns and share buybacks.

The benchmark STOXX 600 hit a two-week low on Tuesday, with China-exposed mining and luxury sectors taking a beating as investors were disappointed by a lack of fresh stimulus steps from Beijing.

All eyes will be on a news conference by China’s finance ministry on Saturday for new details on fiscal stimulus.

Meanwhile, many ECB policymakers argued their case for another interest rate cut next week.

Money market pricing suggests traders have almost fully priced in a 25 bps rate cut by the ECB next week, and see a 94% probability of another such move in December.

Against a backdrop of a stagnating economy, cooling price pressures and a weakening labour market, the STOXX index along with equities in major regional markets are on track for gains this year.

Europe is trading at a discount relative to the U.S. and even though economic growth is less than what you would want, corporate profitability is still holding up in aggregate terms, according to Richard Flax, chief investment officer at Moneyfarm.

You are going to see interest rate reductions and then an acceleration in European growth over the next 12 to 18 months, he said.

Focus will be on third quarter earnings next week, with data compiled by LSEG forecasting a 4.6% rise from a year ago.