by Diana Mandia
(Reuters) – European stock markets ended sharply higher on Tuesday, as higher-than-expected US inflation in February did not dampen investors’ hopes that the Federal Reserve (Fed) would soon reduce interest rates, even if some analysts warn that further negative inflation surprises could delay the decision.
In Paris, the CAC 40 ended with an increase of 0.84% to 8,087.48 points. The British Footsie, which reached its highest session since May 2023, gained 1.02% and the German Dax 1.23%.
The EuroStoxx 50 index gained 1.07%, the FTSEurofirst 300 1.03% and the Stoxx 600 1.01%.
The strength of consumer prices in the United States in February, which the market took note of on Tuesday, did little to shake investors’ conviction that the American central bank, which meets next week, is preparing to proceed with at least three interest rate cuts in 2024, most likely starting in June.
The consumer price index (CPI) rose slightly last month and its “core” version, which excludes volatile energy and food prices, came in better than expected, both on a monthly basis and ‘annual.
“Overall, we think this is a good setup for the central bank to start cutting rates around mid-year, although we don’t see any particular reason to rush things and cut rates sooner,” said Daniele Antonucci, chief investment officer at Quintet Private Bank.
“This figure is just enough to maintain rate cut expectations for June – but another figure like this next month would push the first cut into the second half of the year, calling into question the idea of “a soft landing,” warned Seema Shah of Principal Asset Management.
Market expectations for the timing of the Fed’s first rate cut remained largely unchanged on Tuesday, with traders now seeing a 70% chance that the first rate cut will occur in June, up from 71% before the inflation report, according to the CME’s FedWatch tool.
In Europe, markets will be attentive on Wednesday to the publication of British GDP and industrial production in the euro zone for the month of January, especially as the Bank of England (BoE) and the European Central Bank (ECB) also examine any new economic data before proceeding with their respective rate cuts.
VALUES
On the STOXX 600, basic resources and banks were among the best performing sectors on Tuesday, rising 1.51% and 1.86% respectively.
In Frankfurt, shares of Wacker Chemie rose 5.6% after the German chemicals maker reported first-quarter outlook that beat estimates. Its progression helped the chemicals sector advance by 0.96%.
Porsche gained 11.4% thanks to annual results in line with expectations.
British property builder Persimmon, which missed profit forecasts and warned of sluggish market conditions in 2024, lost 3.6%.
The German real estate group TAG Immobilien lost 3.1% after posting a loss in 2023 against a backdrop of sectoral crisis in Germany and announcing the suspension of dividend payments.
In Paris, their counterpart Nexity dropped 5.9% and the French land management company Covivio 3%.
A WALL STREET
At closing time in Europe, Dow Jones gained 0.25%, the Standard & Poor’s 500 0.63% and the Nasdaq Composite 0.89%.
Oracle, which reached a record level during the session after exceeding expectations for its quarterly profit, took 12.5%.
Shares of US airlines fell on Tuesday, with some warning that its plans to increase capacity were in doubt due to delays in the delivery of planes from Boeing (-4.4%). Southwest Airlines loses 14%% and United Airlines 3.2%
TODAY’S INDICATORS
In Europe, Germany, the bloc’s largest economy, saw inflation slow year-on-year in February to 2.7%, as expected, according to data published Tuesday.
The market also welcomed new wage data in the UK, which is growing at its slowest pace since October 2022, which could prompt the Bank of England (BoE) to ease monetary policy.
CHANGES
The dollar rose 0.14% against a basket of benchmark currencies, with prospects of a rate cut in June fading, while the euro EUR= dropped 0.09% to $1.0916.
RATE
Yields in Europe rose Tuesday after stronger-than-expected U.S. inflation data, which some analysts said could force the Fed to keep rates higher for longer.
The German ten-year yield increased by almost 3 bps to 2.326%, while that of the two-year rate DE2YT=RR rose 5.5 bps to 2.8219%.
US bond markets are also strengthening due to persistent inflation.
The ten-year Treasury yield rises almost 5 basis points to 4.15%, while the two-year US2YT=RR rises more than 6 basis points to 4.59%.
OIL
Oil prices rose slightly on Tuesday, in a context of persistent tensions in the Middle East, and while OPEC on Tuesday maintained its forecast of relatively strong growth in global demand in 2024 and 2025 and further revised to raises its economic growth forecast for this year.
Brent rose 0.34% to $82.49 per barrel, with American light crude (West Texas Intermediate, WTI) up 0.41% to $78.25.
(Writing by Diana Mandiá, editing by Zhifan Liu)
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