European shares subdued at close amid caution ahead of week’s Fed rate decision

[BENGALURU] European shares ended subdued on Monday (Dec 8), with higher bond yields weighing slightly on the main index, as the week began on a cautious note with investors looking ahead to the US Federal Reserve’s monetary policy meeting.

The pan-European Stoxx 600 was down 0.1 per cent at 578.36 points at close. Major regional indexes were mixed, with London’s FTSE 100 down 0.23 per cent and Spain’s IBEX 35 up 0.1 per cent.

Real estate stocks were the biggest drag on the main Stoxx index, down 1.6 per cent, pressured by a spike in long-dated government bond yields across the globe amid concerns about fiscal sustainability.

Germany’s 30-year yield rose to 3.466 per cent, after climbing more than 10 basis points last week to its highest level since July 2011.

Moves were further influenced by better-than-expected German industrial production data and hawkish comments from influential rate-setter Isabel Schnabel, who hinted that the next move from the European Central Bank may be an interest rate hike, rather than a cut.

Consumer staples stocks weighed, with Unilever down 2 per cent. The consumer goods giant completed its Magnum demerger, resulting in the latter getting listed as the Magnum Ice Cream Company with a valuation of some 7.8 billion euros (S$11.8 billion).

L’Oreal fell 2 per cent after the French company said it will double its stake in Swiss skincare firm Galderma to 20 per cent. Galderma shares were up 1 per cent.

On the flip side, industrials advanced 0.6 per cent, led by defence firms. Rheinmetall added 3.6 per cent, while the broader index climbed 1.6 per cent to lead sectoral gains.

The sector has been sensitive to headlines on progress on the Russia-Ukraine war. It logged steep declines in November as a ceasefire looked imminent, but recouped some ground as uncertainty set in.

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On Monday, the leaders of France, Germany and Britain staged a strong show of support for Ukrainian President Volodymyr Zelensky in London amid mounting US pressure on Kyiv to agree to a proposed peace deal with Russia.

Investors also exercised some caution ahead of the Fed’s meeting this week, where the central bank is expected to lower interest rates by 25 basis points.

“There’s definitely a cautious mood to trading at the start of the week. It’s not just the actual rate cut because that’s priced in; it’ll be what happens next,” said Fiona Cincotta, senior market analyst at City Index.

According to the CME Group’s FedWatch tool, odds for a quarter-point cut this week stand at 87.6 per cent.

“We will be watching very closely how the Fed members are expecting to behave next year, whether the rate cuts are being supported by the most hawkish members,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Global markets have gained in the last few weeks on rising expectations of a Fed cut in December, after dovish comments from some policymakers and delayed data pointing to weakness in the economy.

The Stoxx 600 logged its second week of gains on Friday, largely driven by auto stocks, after the US administration’s proposal to reduce fuel economy standards brightened their 2026 outlook, prompting upgrades from brokerages such as BofA Global Research and Citigroup.

On Monday, the sector was down 0.9 per cent, among the biggest losers on the index. Ferrari lost 3.5 per cent after Morgan Stanley downgraded the stock to “equal weight” from “overweight”, citing limited short- and medium-term growth prospects.

Among other stocks, Auto1 added 1.5 per cent after Jefferies initiated coverage with a “buy” rating.

Renk and Bayer climbed 5.5 and 4.7 per cent, after rating upgrades from Citigroup and JPMorgan, respectively. REUTERS