Europe midday: Stocks stay up ahead of expected ECB rate cut

12th Sep 2024 11:00

(Sharecast News) - European stocks were still firmer by midday on Thursday, having taken their opening cue from a solid session on Wall Street, as investors eyed an expected rate cut by the European Central Bank.

The benchmark Stoxx 600 index was up 1%, Germany's DAX was 1.2% higher and France's CAC 40 was 0.9% firmer.

Overnight in the US, stocks rallied as the latest inflation reading showed a higher-than-expected increase in core inflation, raising expectations of a 25 basis points rate cut from the Federal Reserve at next week's policy meeting.

Joshua Mahony, chief market analyst at Scope Markets, said: "European equities are following their US counterparts higher following a session that saw a belated surge in tech stocks following an initial post CPI downturn.

"While traders have been weighing up the possibility of a 50-basis point rate cut next week, that appears to have largely gone out the window after a core CPI metric that posted the highest monthly figure since April. Nonetheless, while a bumper 50bp move appears to be largely disregarded, a calm cut from the Fed does ease the perception that the US economy is heading for recession and in need of drastic support."

Closer to home, attention shifted to the ECB's rate announcement, due at 1315 BST.

"Today sees traders turn their attention to European affairs, with the ECB expected to cut rates for just the second time in five-years. With markets essentially viewing a 25-basis point cut as a foregone conclusion, much of the day's focus will be on the outlook for the pace of easing going forward," said Mahony.

"However, for all the talk of potential 50bp cuts at the Fed, the ECB will want to ensure that the spread between US and Euro rates narrow rather than widen. As such, the pace of Fed tightening will play a key role in expectations around the ECB, and in all likeliness we will see a more steady approach to easing to avoid capital flight given the attractive risk-free return currently offered in the US."

In equity markets, Switzerland's Roche was under the cosh after disappointing results from an early-stage trial of a weight-loss drug.

Elsewhere, London-listed drinks giant Diageo was boosted by an upgrade to 'buy' at Bank of America Merrill Lynch.

Trainline surged as it lifted its full-year profit outlook following a strong first half, which was ahead of its expectations.