European stocks saw modest gains on Tuesday, reaching fresh two-year highs, driven by a combination of factors including strong corporate earnings, Wall Street’s positive performance, and investor anticipation of potential interest rate cuts.
The pan-European STOXX 600 index rose by 0.3% as of 0920 GMT, marking its fifth consecutive session of gains.
Leading the charge was Finnish retailer Kesko (KESKOB.HE), surging 9.6% after surpassing fourth-quarter profit expectations.
Danish medical equipment manufacturer Ambu (AMBUb.CO) followed closely with a 5.6% gain following better-than-expected first-quarter earnings.
Investor sentiment was also buoyed by Wall Street’s record highs on Monday.
Market attention was now focused on upcoming big-tech earnings reports from the United States and the Federal Reserve’s impending interest rate decision, both of which could significantly influence global markets.
In Europe, there was a general consensus that interest rate cuts were on the horizon, although policymakers remained divided on the timing of such actions.
Traders had factored in roughly a 75% likelihood of a 25 basis point cut by the European Central Bank in April.
Ipek Ozkardeskaya, Senior Market Analyst at Swissquote Bank, noted, “The question is whether the slowdown in the European economies are going to be enough to temper the rise in energy prices.
Depending on the inflation, the ECB will be able to make that decision, but again only slowing European economies won’t be enough to justify an interest rate cut from the ECB, which has this single mandate of controlling inflation.”
European banks showed resilience, with the SX7E index gaining 0.8%, driven by a 3.4% surge in BBVA (BBVA.MC) following a 32% increase in the Spanish lender’s fourth-quarter net profit.
However, spirits maker Diageo (DGE.L) experienced a 3.8% drop after missing first-half year sales estimates.
Preliminary data revealed that the French economy stagnated in the fourth quarter, aligning with analyst forecasts.
JPMorgan analysts expected a return to growth for the French economy in the first quarter. In contrast, preliminary data indicated a 0.6% expansion in Spain’s economy during the same period.
Market watchers were eagerly awaiting the euro zone’s preliminary fourth-quarter GDP figures and the final estimates of consumer confidence for January.
Among other notable movers, Hapag Lloyd (HLAG.DE) fell 9.3% due to worse-than-expected fourth-quarter earnings attributed to reduced transport volumes resulting from Red Sea attacks impacting the German container shipper.