European Shares Climb Amid Optimism Over U.S. Rate Cuts as UK Markets Surge

The pan-European STOXX 600 index rose by 0.6%, reaching a high not seen in over a week.

European shares experienced an uptick on Thursday, driven by optimism surrounding potential U.S. interest rate cuts in response to weak economic data.

Meanwhile, London markets saw gains as voting commenced in the UK general election, with polls indicating a potential historic victory for the Labour party.

The pan-European STOXX 600 index rose by 0.6%, reaching a high not seen in over a week.

Britain’s FTSE 100 advanced by 0.8%, as markets anticipated the scale of the Labour Party’s expected majority.

“The UK outcome, widely expected to be a Labour victory, won’t have much impact unless there’s a big upset or surprising outcome, as markets have likely already discounted this,” noted Bas van Geffen, senior macro strategist at Rabobank.

French stocks also rose for the second consecutive day, climbing by 0.8%, amidst intensified efforts by opponents of the National Rally (RN) to prevent the far-right party from gaining power.

A Thursday opinion poll suggested that RN would likely fall short of an absolute majority in the upcoming parliamentary election.

The European lenders sub-index, which includes French banks like Societe Generale and BNP Paribas, saw a 1.3% increase, leading sectoral gains.

Positive sentiment was further bolstered by weak U.S. economic data, which raised hopes for Federal Reserve rate cuts. Initial claims for U.S. unemployment benefits rose last week, pointing to a cooling labor market.

In Europe, unexpected drops in German industrial orders for May and falling Swiss inflation last month encouraged markets to predict further central bank interest rate cuts later this year.

Citigroup strategists commented, “Today’s headlines may create dovish risk, but the stickiness in services and domestic inflation at the high end of the (Swiss National Bank)’s target corridor or above may be a concern.”

European Central Bank policymakers expressed confidence in continuing inflation reductions, though some were uneasy about cutting rates last month due to various negative economic surprises, according to meeting records.

Among individual stocks, Britain’s Smith & Nephew rose by 6.8% after activist investor Cevian Capital revealed a 5% stake in the medical equipment maker.

In contrast, France’s Pluxee fell by 9.2% following weaker-than-expected third-quarter sales.

Sweden’s Ericsson slipped by 1.2% after announcing an impairment charge of 11.4 billion Swedish crowns ($1.09 billion) for Q2 2024.

Trading volumes were low due to a public holiday in the United States.