European stocks up as investors see signs Fed could slow rate rises

LONDON, Oct 25 (Reuters) – European stocks rose in early trading on Tuesday as investors wary of signs that the U.S. Federal Reserve could slow its rate hikes, although concerns over China’s economy continue to weigh in Asian markets.

Asian stocks struggled to make gains on uncertainty over whether Xi Jinping’s new leadership team would prioritize economic growth. The Chinese onshore yuan ended the domestic session with its weakest close since late 2007 .

European stock indices opened higher, with the STOXX 600 up 0.4% at 08:09 GMT (.STOXX).

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The MSCI World Equity Index, which tracks stocks from 47 countries, rose 0.1% on the day (.MIWD00000PUS) and MSCI’s main European index (.MSER) reached a five-week high, up 0.8% on the day (.MSER).

“The immediate cause seems to be some hope that the pace of central bank tightening may start to slow later this year and that’s a relief to some investors,” said Hani Redha, portfolio manager at Pinebridge Investments.

Business activity in the United States contracted for a fourth consecutive month, data showed on Monday, suggesting that Fed rate hikes have weakened the economy, raising hopes that the bank central could begin to slow the pace of increases.

The Fed’s expected rate peak fell slightly to around 4.93% from more than 5% at the start of last week .

Economists polled by Reuters said the central bank is unlikely to stop until inflation falls to about half its current level.

Better-than-expected earnings results also supported sentiment in European stock markets, Swiss bank UBS (UBSG.S) among those that exceed market expectations. But Europe’s biggest bank, HSBC, reported a 42% drop in third-quarter profits, dragging its shares down 4%. (.HSBA.L).

Tech giants Alphabet and Microsoft report earnings later in the session.

Pinebridge’s Redha said earnings estimates had fallen slightly in recent months, but the pace of that had been “fairly modest”.

“The potential relief investors are feeling as the end of the bull cycle nears, which appears to be outweighing the steep decline in earnings estimates.”

The US dollar index was a bit higher on the day, up 0.1% to 112.01.

The euro slipped, down 0.1% to $0.98675. The European Central Bank meets on Thursday and is expected to raise rates by 75 basis points.

The British pound rose 0.2% to $1.1309. It recovered from session lows and gilt yields fell sharply on Monday in a sign of relief for investors when it was announced that former finance minister Rishi Sunak would be the next prime minister.

Eurozone government bond yields fell, with the German benchmark 10-year rate falling 7 basis points to 2.272% .

German business sentiment fell slightly in October, but the data still beat analysts’ estimates.

The data “suggests that at least business sentiment is bottoming out,” Carsten Brzeski, global head of macro at ING, said in a client note. “However, this does not mean that an improvement in the economy is near.”

Oil prices rose, although gains were limited by fears of slowing growth in the United States and China.

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Reporting by Elizabeth Howcroft

Our standards: The Thomson Reuters Trust Principles.

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