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European stocks hit six-week high on hopes for rate hike slowdown

by jcp
Editorial & Advertiser disclosure
gawdo

By Elizabeth Howcroft

LONDON (Reuters) -European stocks rose on Tuesday and the positive market sentiment was set to continue on Wall Street, supported by speculation among investors that central banks could come to the end of their rate-hiking cycles.

Following mild losses on Wall Street on Monday, Asian shares strengthened on Tuesday and European shares opened higher, as investor focus shifted to the U.S. Federal Reserve’s rate decision on Wednesday and the Bank of England meeting on Thursday.

At 1153 GMT, the MSCI world equity index, which tracks shares in 47 countries, was up 0.7% on the day, holding close to last week’s high.

Europe’s STOXX 600 rose to its highest in more than six weeks, up 1.2% on the day.

London’s FTSE 100 was up 1.4%, while Germany’s DAX was up 1.3% .

British energy giant BP made $8.15 billion in third quarter profit, more than double what it made in the same period last year. Rivals Shell, Exxon Mobil and TotalEnergies also reported bumper profits last week.

U.S. stock futures rose, with Nasdaq e-minis up 1.2% and S&P 500 e-minis up 0.9%.

Norman Villamin, chief investment officer of Wealth Management at UBP, said the rise in European stocks could be due to “effectively dovish” guidance from the European Central Bank last week.

“While that’s positive I would caution people. To us that just means that the recession is a little less deep than it may otherwise have been, but we do think that a recession is coming in Europe,” he said.

Although last week’s ECB meeting was perceived by markets as containing dovish signals, ECB President Christine Lagarde said in an interview on Tuesday that the central bank must keep raising interest rates to fight off inflation, even if the probability of a euro zone recession has increased.

Data on Monday showed that euro zone inflation surged by more than expected in October, hitting 10.7%.

RATE HIKES

The Fed is expected to raise interest rates by 75 basis points on Wednesday, but investors will look for any signals the Fed may be considering a deceleration in interest rate hikes in the future.

Villamin said that central banks are caught in a “tug of war” between the slowing economy and high inflation.

“In the U.S., because the economy is still doing pretty well, there’s not very many shocks, we think ongoing rate hikes make a lot of sense in the first half of next year,” he said.

Euro zone government bond yields fell. The German 10-year yield was down 11 basis points on the day at 2.048%.

U.S. Treasury yields also fell, with the 10-year yield down 13 bps at 3.9468%, and the two-year yield down 7 bps at 4.4266%.

The U.S. dollar index was down 0.7% at 110.8, while the euro was up 0.6% at $0.99405.

The Australian dollar was up 0.8% at $0.6451. The Reserve Bank of Australia raised rates by 25 bps for a second month running, but revised up its inflation outlook and said more rate hikes would be needed.

The Japanese yen was a touch stronger versus the dollar, with the pair at 147.28.

China’s yuan hit a near 15-year low against the dollar, after the central bank fixed the official guidance rate at its lowest level since the global financial crisis of 2008.

Oil prices rose by more than 1%, paring losses from the previous session, helped by the weaker dollar.

Gold also rose, up 1.2% $1,652.38 per ounce.

(Reporting by Elizabeth Howcroft, Editing by Ed Osmond and Chizu Nomiyama)

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