European shares gain as cool US data bolsters Fed rate cut hopes

13 Jun, 2024

PARIS: European shares advanced on Wednesday, with rate-sensitive sectors like real-estate jumping after a cool US inflation reading propped up hopes that the Federal Reserve could kick-off its policy easing cycle soon.

The pan-European STOXX 600 closed 1.2% higher after falling for the last three sessions, its biggest single-day percentage jump since January.

Global sentiment remained upbeat after data showed US consumer prices were unexpectedly unchanged in May, while underlying inflation pressures abated last month.

“We anticipated the headline inflation number to behave well this time around ... what we are particularly encouraged about is the core number,” said Frederique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia.

“We are encouraged by the earnings season in the US and we know that interest rates will be coming down.”

Traders boosted bets that the Fed will cut interest rates by September following the data.

Rate-sensitive real estate led gains amongst major STOXX 600 sectors with a 2.7% jump, while technology added 2.4%.

European automakers such Volkswagen and BMW slipped around 1% each on fears of Chinese retaliation after the European Commission said it would impose duties on imported Chinese electric vehicles.

Luxury German manufacturer Porsche Holding dropped 7.2% as its shares traded ex-dividend.

European equities hit record highs last week after the European Central Bank’s (ECB) first rate cut in five years but have since pulled back due to political tremors domestically.

France’s CAC 40 ended 1% higher after logging sharp declines in the last two sessions, when French President Emmanuel Macron called for snap legislative election.

Amongst other data points, German inflation rose in May, confirming a prior estimate, while Britain’s gross domestic product was flat in April after a strong start to 2024.

Later in the day, the Fed is expected to leave interest rates unchanged, with new economic projections from policymakers likely to show fewer rate cuts this year than previously anticipated.

Back in Europe, ECB vice-president Luis de Guindos said the central bank must move “very slowly” in reducing interest rates because there is huge uncertainty over the inflation outlook.

Among individual stocks, Umicore slumped 7.5% after the Belgian metal recycling group lowered its 2024 profit forecast.

Rentokil Initial jumped 13.7% after activist investor Nelson Peltz’s Trian Fund Management amassed a significant stake in the British pest-control firm.

Finland’s Konecranes jumped 7.6% after the engineering group said it had raised its profitability outlook for the full year.

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