Europe close: Stocks rise on hopes ECB will hold rates steady

(Sharecast News) - European stock markets bounced back on Tuesday as worse-than-expected economic data cemented expectations that the European Central Bank (ECB) will hold interest rates steady at its next meeting on Thursday. After five straight days of losses, the pan-European Stoxx 600 Index finished up 0.4%, with most major markets in positive territory with the exception of Milan's FTSE MIB, which fell 0.2%.

A strong start on Wall Street was also providing a lift after a raft of better-than-estimated earnings than blue chips such as General Motors, 3M, General Electric and Coca-Cola.

Closer to home, a barrage of economic data was keeping investors busy, though on the whole indicators were broadly worse than expected. Policymakers will be watching incoming data closely ahead of the ECB meeting on Thursday.

"Amid the weakening real economy (with another contraction signal from today's PMI survey results) alongside a visible decline in inflation (to 4.3% yoy in September after 5.2% in August) - as well as the ECB's own forecast that inflation will return to target in H2 2025 - policymakers will likely decide almost unanimously to keep rates on hold," said Salomon Fiedler, economist at Berenberg.

Economic data weakens

The economic downturn in the Eurozone deepened in October, with private sector output declining at its steepest rate in 35 months, according to 'flash' purchasing managers' indices (PMIs). The flash Eurozone composite PMI dropped to 46.5 in October, down from 47.2 in September and surprising economists who had expected a slight tick-up to 47.4.

This was the fifth straight month of falling business activity and the lowest reading since November 2020. However, if pandemic-affected months are excluded, this would have been the steepest rate of decline in over a decade, according to S&P Global.

Consumer sentiment in Germany declined for a third straight month in October, as hopes of a recovery before the end of the year begin to fade. The GfK's forward-looking forecast value for the consumer climate in November dropped to -28.1 points, compared with a revised -26.7 the previous month.

The UK unemployment rate ticked up to 4.2% in the three months to August from 4.0% in the three months to July, according to figures released on Tuesday by the Office for National Statistics. The data also showed that the employment rate declined by 0.3 percentage point to 75.7%, while employment fell by 82,000 following a 133,000 drop in the previous quarter.

Barclays down, UniCredit up

Shares in Barclays finished down 6% following the bank's third-quarter results. Headline profits were ahead of analysts' forecasts, but the bank cut its guidance for net interest margin (NIM) - a key measure of profitability for retail banks - for 2023.

The full-year Barclays UK NIM - the difference between interest income and the amount it pays back in interest on deposits - was revised to 3.05-3.10%, down from earlier guidance of 3.15-3.20%.

London peers Lloyds and Natwest were also trading lower.

Falls in the banking sector were partly offset by a strong performance from the miners, with Rio Tinto leading the charge after an upgrade by Barclays to 'overweight'. Anglo American, Glencore and Antofagasta were also higher.

Over in Milan, Italian banking group UniCredit was in positive territory after raising its revenue forecasts after delivering a 54% year-on-year jump in diluted earnings per share in the third quarter.

French luxury group Hermès was performing well after delivering a 17% jump in revenues to €10.1bn in the third quarter and giving an upbeat outlook. "In the medium-term, despite the economic, geopolitical and monetary uncertainties around the world, the group confirms an ambitious goal for revenue growth at constant exchange rates," the company said.

Luxury peers LVMH, Christian Dior, Kering and Pernod Ricard also rose in solidarity.