Europe: Shares at 22-month high as dovish US Fed overshadows ECB rate cut snub
EUROPEAN shares slipped from Thursday’s (Dec 14) highs but still ended the session higher as investors cheered the US Federal Reserve’s dovish shift a day earlier and shrugged off the European Central Bank (ECB) pushing back against market bets of interest rate cuts.
The pan-European index closed 0.9 per cent higher to an over 22-month high, after rising as much as 1.7 per cent earlier in the day, and the eurozone’s top blue-chip index was up 0.3 per cent by close after briefly touching an over 22-year high.
Both the indexes pared some gains after the ECB pushed back against bets on imminent cuts to interest rates by reaffirming borrowing costs would remain at record highs despite lower inflation expectations.
The central bank, however, kept rates steady as widely expected.
“Market’s still reacting to a surprising dovish shift from the Fed, while the ECB was relatively hawkish due to lack of indication of even considering cuts,” said Patrick Armstrong, chief investment officer at Plurimi Wealth.
“But I do think it’ll be a cut in March from the ECB.”
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The Fed, meanwhile, left rates unchanged on Wednesday, with chair Jerome Powell suggesting that rate hikes were likely done with due to easing inflation and that discussion of rate cuts was “coming into view”.
“The Fed has overtaken the ECB to be the markets’ favourite for which major central bank will cut first,” said Stuart Cole, chief macroeconomist at Equiti Capital.
The Stoxx 600 has gained 12.3 per cent year-to-date versus the US benchmark S&P 500’s 23 per cent during the same period.
The eurozone’s equity volatility index slid to its lowest level since 2020, reflecting market optimism.
Rate-sensitive real estate stocks soared 5.7 per cent, leading sectoral gains, while miners also jumped 3.3 per cent tracking higher metal prices.
Separately, the Bank of England stuck to its guns and said interest rates needed to stay high for “an extended period”. UK’s benchmark FTSE 100 was up 1.3 per cent, slipping from the day’s high.
Elsewhere, the Swiss National Bank held its rates and lowered inflation forecasts, while Norway’s central bank delivered a surprise rate hike.
Vivendi advanced 10 per cent as the French media company plans to examine splitting up some of its activities.
AMS Osram jumped 13.5 per cent after Jefferies upgraded the Swiss sensor maker to “buy” from “hold”.
Italian luxury group Brunello Cucinelli gained 6.9 per cent after raising its 2023 revenue growth forecast again.
MorphoSys shed 4.0 per cent after the German biotech firm launched a 10 per cent cash capital increase. REUTERS
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