European shares rise as investors anticipate ECB rate decision

European shares saw an upward trend on Monday, mirroring gains in Asian equities, as investors geared up for an important interest rate decision from the European Central Bank (ECB) scheduled for later this week.

By 0832 GMT, the pan-European STOXX 600 had increased by 0.6%, marking the third consecutive session of gains. The positive sentiment was driven by China’s factory activity, which grew at its fastest pace in about two years in May. Additionally, a softer U.S. inflation print on Friday boosted hopes that the Federal Reserve might cut interest rates this year.

Attention is now focused on the ECB’s interest rate decision on Thursday. According to a Reuters poll, the central bank is expected to reduce borrowing costs by 25 basis points from its current record-high levels. Kathleen Brooks, research director at XTB, noted that while a 25 basis point rate cut is anticipated on Thursday, the future course of rate adjustments will be more significant for financial markets. She added that ECB President Christine Lagarde might not confirm further rate cuts immediately but could suggest a possible rate cut in September if inflation decreases in the coming months.

The anticipation of rate cuts is supported by signs of easing inflation in the region. However, a higher inflation reading for May has raised uncertainties about the extent of rate cuts this year. European lenders were among the top performers, nearing record levels and rising nearly 1%, with Avanza Bank leading the sector with a 1.2% gain following an upgrade from Barclays. Technology stocks also contributed to overall market gains, increasing by 1.1%.

Data from HCOB’s final euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, indicated that new orders declined at their slowest pace in two years, boosting business confidence. However, not all sectors fared well. British drugmaker GSK fell by 9.2% after a Delaware judge allowed over 70,000 lawsuits concerning the discontinued heartburn drug Zantac to proceed, leading the healthcare sector to underperform, down by 0.7%.

In another development, Atos experienced a significant decline of 18.1%, reversing earlier gains. The distressed IT consulting firm has given itself until Wednesday to choose between two revised restructuring proposals that would heavily dilute current shareholders and significantly reduce its debt burden.

JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.

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