European stocks climbed to a two-week high on Tuesday, largely buoyed by financial stocks. This uplift comes as markets near the expected onset of the U.S. Federal Reserve’s monetary easing, which may involve a significant reduction in interest rates. The STOXX 600 index across Europe rose by 0.5% to 517.74 points, while Britain’s FTSE 100 saw an even stronger performance, gaining 0.7%.
Across the board, all sectors posted gains, with the basic resources sector leading the way, up nearly 1%. This was driven by a slight uptick in copper prices, as a softer U.S. dollar helped bolster demand. Additionally, there was heightened expectation of a U.S. interest rate cut, which supported this positive trend in commodity prices.
Banks and travel stocks also contributed to the market’s momentum, each rising by 0.8%. Investors were particularly focused on the Federal Reserve’s upcoming decision, which is due on Wednesday. There is a growing belief that there is a 67% chance the central bank may opt to cut rates by as much as 50 basis points, a move which has stirred optimism in the financial markets.
According to Yvan Mamalet, a senior economic strategist at SG Kleinwort Hambros, there is some volatility and nervousness regarding economic growth and political uncertainties, but much of the market’s anticipation surrounds the decisions of central banks. He added that the Federal Reserve isn’t the only factor in play, noting that the Bank of Japan’s decision later in the week could also contribute to market jitters.
In addition to these broader market movements, investors will be keeping a close eye on the German sentiment survey, set to be released at 0900 GMT, which may reveal a slight weakening in September. U.S. retail sales data, due at 1230 GMT, is also expected to show a contraction in August.
Throughout the day, remarks from key European Central Bank figures will be watched closely. Claudia Buch, alongside board members Elizabeth McCaul and Frank Elderson, are scheduled to speak, offering potential insights into future ECB policy.
Among individual stocks, Kingfisher led the pack with a notable 7.1% rise after the European home improvement retailer adjusted its profit outlook for the full year. Barry Callebaut shares also climbed by 7%, bolstered by a rating upgrade from Barclays, which shifted its recommendation from “underweight” to “overweight”.
On the downside, Sweden’s Thule Group saw a sharp decline, falling 6.7%, as its second-quarter revenue dropped and its debt levels increased. Playtech also slipped by 2.3%, following its announcement that it would sell its Italian unit Snaitech to Flutter Entertainment for €2.3 billion, a deal which includes the company’s existing debt.
European markets are experiencing a wave of optimism ahead of key central bank decisions, particularly in light of potential rate cuts from the U.S. Federal Reserve. Investors remain alert to both economic data and central bank communications, which will undoubtedly shape the next moves in the market.
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