European stocks extended gains to a fifth day as cooling US inflation fueled optimism that the Federal Reserve is nearing the end of its interest rate hiking campaign.

The Stoxx 600 Index rose 0.4% by 9:57 a.m. in London, marking the gauge’s longest winning streak since April as it continued to recover from last week’s decline. Tech and mining subgroups outperformed, while construction stocks were laggards.

Swiss watchmaker Swatch Group AG rallied after reporting higher sales and profit in its first-half results, with China’s reopening driving a rebound and propelling results above pre-pandemic levels. Meanwhile, Watches of Switzerland Group Plc soared as the UK’s biggest retailer of Rolex watches said demand for luxury timepieces had remained solid despite increased prices.

Adding to the optimism was data from the Office for National Statistics showing that the UK economy shrank less than expected in May. Following Wednesday’s US consumer price data, investors turn their attention next to the producer price index, which is also taken into account by Fed officials when considering their next move.

“The recent soft US inflation data will have a positive impact on small-cap stocks and sectors sensitive to interest rates, both of which have been heavily oversold in the past three months,” said Liberum analyst Susana Cruz.

“Additionally, European equities are likely to receive support as the region faces an economic downturn caused by domestic demand reduction and influences from abroad,” Cruz said. “The latter is primarily influenced by higher borrowing costs in the US.”

Elsewhere, Britain’s homebuilders tumbled after a survey showed that prospective home buyers were pulling back from the property market at the sharpest pace in eight months. Barratt Developments Plc declined as the company announced a decline in total reservations, driven by a slump in first-time buyer bookings.

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• Top UK Banks Get Clean Bill of Health From BOE: The London Rush

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