Europe: Shares notch monthly gain on Fed pivot hopes, robust earnings

EUROPEAN stocks marked their first monthly gain in three on Monday (Oct 31), buoyed by a better-than-expected earnings season and hopes that the US Federal Reserve would slow its pace of interest rate hikes.

The pan-European Stoxx 600 index rose 0.4 per cent to close at a more than six-week high, having recouped early losses following data showing record-high inflation in the euro zone.

The Fed is widely expected to raise its benchmark lending rate by 75 basis points this week, but markets remain hopeful the central bank will deliver a smaller 50 bps increase in December so as to avoid sending the world’s biggest economy into a tailspin.

“I think the market is taking some comfort and predicting a Fed that may start to pivot, but I’m not sure if that is the correct view at this point given how high inflation is,” said Patrick Armstrong, chief investment officer at Plurimi Wealth.

“European markets are up a little bit today...playing catch up with a really strong afternoon session in the United States last week.”

Eurostat data showed inflation in the 19 countries sharing the single currency accelerated to 10.7 per cent in October from 9.9 per cent a month earlier, beating expectations in a Reuters poll for 10.2 per cent and way higher than the European Central Bank’s (ECB) 2 per cent inflation target.

“With inflation having jumped to well over 10 per cent, the ECB will prioritise price stability and press on with rate hikes regardless,” said Andrew Kenningham, chief Europe economist at Capital Economics.

The ECB doubled its deposit rate to 1.5 per cent last week and promised more tightening in the months to come even if it pushes the bloc into recession.

Investors will also look towards a Bank of England policy meeting later in the week, with bets running high of it not budging from its similarly hawkish stance.

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Travel and leisure stocks rose 1.3 per cent, leading gains among European sectors, after International Consolidated jumped 5.4 per cent as a Times report stated that it will renew its EU consolidation plans.

Credit Suisse rose 5.2 per cent as it unveiled details of its plan to raise 4 billion francs (S$5.7 billion) from investors to support the embattled bank’s bid to tackle the biggest crisis in its 166-year history.

Fresenius Medical Care (FMC) jumped 6.6 per cent after the German dialysis provider on Sunday reported third-quarter earnings above market expectations. REUTERS