European shares saw a positive trend for the third consecutive session on Monday, as investors anticipated an interest rate cut from the European Central Bank (ECB). The STOXX 600 index closed 0.3% higher, with notable gains in Spanish and Italian stocks leading the way. This surge in stock prices was driven by expectations of a potential interest rate reduction by the ECB later this week.
Global factory activity showed signs of improvement, adding to the positive sentiment in the market. Weaker manufacturing data in the US and falling inflation rates have raised hopes of interest rate cuts by the Federal Reserve later this year. Market watchers are closely monitoring the ECB’s upcoming interest rate decision, with predictions of a 25 basis points cut from the current record-high levels.
Despite the need for rate cuts due to declining inflation rates, doubts have emerged after a slight uptick in May’s inflation reading. Euro-zone bond yields fell following reports of sluggish factory activity in the region and a contraction in the US. This decline in bond yields benefited rate-sensitive sectors like real estate, telecoms, and utilities, often regarded as bond proxies.
While bond-proxy sectors experienced gains, energy stocks faced a decline amid falling oil prices. British pharmaceutical company GSK witnessed a significant drop of 9.2% after legal issues related to its heartburn drug, Zantac. This decline in GSK shares contributed to a 0.3% decrease in the healthcare sector. Additionally, Atos, an IT consulting firm, saw an 18% decrease in its stock value due to restructuring challenges.
The European market’s positive momentum is driven by expectations of an ECB rate cut and favorable global economic indicators. Despite uncertainties surrounding the rate cutting cycle and fluctuations in different sectors, investors remain cautious but optimistic about future market movements.