European shares finished on a positive note on Friday, driven by rising expectations of a significant interest rate cut by the US Federal Reserve. This comes after the European Central Bank (ECB) made its own move to lower rates the previous day.
US Interest Rate Cut in Focus
Investor sentiment surged following the release of data showing that US consumer confidence hit a four-month high. This optimism has increased speculation that the Federal Reserve may deliver its first interest rate cut in over four years, possibly as large as 50 basis points. Axel Rudolph, a senior technical analyst at IG, commented:
“It’ll be the first cut since holding rates at a 23-year high of 5.25% to 5.5% since last July.”
The Federal Reserve is scheduled to meet on September 18-19, when a decision on the interest rate is expected.
ECB’s Rate Cut Provides Additional Boost
On Thursday, the ECB cut its benchmark rate by 25 basis points, marking its second rate reduction this year. The central bank’s key interest rate now stands at 3.5%, which was largely in line with market expectations. The ECB’s decision reflects the ongoing efforts to manage inflationary pressures across the Eurozone, and the move added to the positive momentum in European markets.
European Equities Close Higher
The pan-European Stoxx 600 index closed the session up 0.76%, reaching 515.95, with all major bourses posting gains. Notably, former head of the New York Federal Reserve Bill Dudley voiced his support for a 50 basis point cut by the US Fed, adding further fuel to market optimism.
Sector Highlights
In corporate news, Stellantis saw its shares rise despite announcing it would suspend production of its electric Fiat 500 model due to weak demand. This highlights ongoing challenges for automakers in adjusting to shifts in the electric vehicle market.
Vodafone climbed by 1%, shrugging off concerns from the UK’s Competition and Markets Authority (CMA), which ruled that the company’s proposed £15bn merger with Three could lead to higher prices for consumers. Despite the regulatory hurdles, investors remained optimistic about Vodafone’s future prospects.
Conversely, Worldline saw a significant drop, with shares plummeting by 14% after the French payment company revealed the departure of its CEO, Gilles Grapinet. The company also downgraded its revenue and earnings forecast for 2024, triggering concerns among investors.
Looking Ahead
As the US Federal Reserve meeting approaches, all eyes will be on the size of the anticipated rate cut. Should the Fed move forward with a 50 basis point cut, it could set a significant tone for global markets moving into the final quarter of the year.
