Europe: Shares close at one-month high on cooling US inflation

EUROPEAN stocks closed at a one-month high on Tuesday, after data showing cooling US inflation raised expectations that the Federal Reserve had reached the end of its interest rate hikes and could start easing monetary policy soon.

The pan-European Stoxx 600 added 1.3 per cent, with rate-sensitive real estate stocks jumping 7.0 per cent and at their highest level since March.

Data showed US consumer prices rose 3.2 per cent in October, moderating from a 3.7 per cent increase in September and below expectations of a 3.3 per cent rise. Core inflation also came in below expectations on a monthly and annual basis.

Supporting equities, euro zone bond yields dropped sharply after the data, with Italy’s 10-year government bond yield dropping to its lowest in two months.

“In the US, the idea that there will be future rate hikes has been pretty much completely priced out of the market,” said Steve Sosnick, chief strategist at Interactive Brokers, highlighting that traders are pricing in rate cuts as soon as May. “Certainly, in many ways the Fed sets the tone for a lot of the world central banks.”

But the European Central Bank (ECB) is seen holding rates steady well into next year, with a majority of economists polled by Reuters sticking to forecasts that the first cut will have to wait until at least July.

Morgan Stanley economists, however, expect the ECB to deliver its first cut of 25 basis points in June.

Investors also digested preliminary data showing a marginal contraction in the euro zone economy in the third quarter, underlining expectations of a technical recession if the fourth quarter turns out equally weak.

The basic resources sector index jumped 3.7 per cent as Glencore gained 4.5 per cent after agreeing to buy a 77 per cent stake in the steelmaking coal business of Canadian miner Teck Resources for US$6.93 billion in cash.

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Vodafone dropped 5.5 per cent after the British telecoms group posted a fall in first-half revenue and said it was considering a range of options for Italy.

German online takeaway food company Delivery Hero jumped 10.4 per cent after slightly raising its full-year forecast.

Informa jumped 5.3 per cent as the British specialist data and events group increased its full-year revenue and profit expectations.

RWE gained 3.7 per cent after Germany’s top utility posted an 82 per cent surge in core profit for the first nine months.

The FTSE 100 rose 0.2 per cent but lagged regional peers after data showed third-quarter British wages remained close to record pace, doing little to ease the Bank of England’s concerns about inflation pressures. REUTERS