European shares saw a rise on Thursday, fueled by optimism surrounding potential U.S. interest rate cuts following soft economic data. The pan-European STOXX 600 index climbed to a more than one-week high, indicating positive sentiment in the region. London markets also experienced gains as the UK general election voting commenced, with polls predicting a historic victory for the Labour party. The FTSE 100 in Britain advanced, with the market eagerly awaiting the results of the election to see the size of the Labour Party’s majority. Despite the anticipated outcome, there could be some impact on the markets if there is a surprising result, as suggested by senior macro strategist Bas van Geffen from Rabobank.
French Stocks and European Lenders
French stocks experienced a 0.8% increase for a second consecutive day, driven by intensified efforts to prevent France’s National Rally party from gaining power. The expectation that RN might fall short of an absolute majority in the upcoming parliamentary election boosted market sentiment. The European lenders sub-index, including major French banks like Societe Generale and BNP Paribas, also saw gains, indicating positive investor outlook following the weak U.S. economic data. The possibility of Federal Reserve rate cuts became more plausible with reports of an increase in U.S. unemployment benefits and unexpected declines in German industrial orders and Swiss inflation.
Central Bank Concerns and Individual Stock Movements
While market sentiment was optimistic overall, concerns about falling inflation and interest rate cuts lingered among European Central Bank policymakers. Despite some unease among policymakers, the majority remained confident that inflation would continue to decline. However, negative surprises from various economic reports had an impact on the decision-making process during their meeting. Individual stock movements also showcased mixed results, with UK-based Smith & Nephew seeing a 6.8% rise after activist investor Cevian Capital disclosed a stake in the company. In contrast, France’s Pluxee fell by 9.2% following weaker-than-expected sales, while Sweden’s Ericsson slipped 1.2% due to an impairment charge recorded in the second quarter of 2024. The overall trading volumes remained low due to a public holiday in the United States.
The rise in European shares was driven by a combination of factors, including optimism about U.S. interest rate cuts, UK general election outcomes, and positive stock movements. While certain concerns persist regarding inflation and central bank policies, the overall market sentiment remains positive. Investors will continue to monitor developments closely to gauge the impact of upcoming events on the European markets.