Europe close: Falling German inflation lifts stocks

(Sharecast News) - European stock markets finished mostly higher on Wednesday, with the exception of London's FTSE 100 index, as a bigger-than-expected drop in German inflation and predictions about a future interest-rate cut in the US lifted sentiment. The pan-European Stoxx 600 index finished the day up 0.45%, as gains of 1% or more in Frankfurt and Milan helped outweigh a 0.4% drop in London.

European data beats forecasts

German inflation eased in November to the lowest level for more than two years, official data showed on Wednesday. Data from Destatis showed the consumer price index was 3.2% in November compared to the same month last year, down from 3.8% and well below the 3.5% consensus estimate. It was also the lowest level since June 2021, when CPI was 2.4%. Core inflation, meanwhile, fell more than expected to 2.3% from 3.0%.

"This means the eurozone's inflation data seems to be heading in the same direction as the US, giving the ECB some latitude in its approach to monetary policy. Coming hot on the heels of a previously-hawkish Fed member seeming to convert to a more dovish posture, today's CPI figures give further room for equities to run higher into December," said analyst Chris Beauchamp from IG.

In other news, the European Commission's economic sentiment indicator (ESI) for the bloc rose to 93.8 from 93.5 in October, coming in a touch above consensus expectations for a reading of 93.7.

In the UK, mortgage approvals jumped last month despite borrowing costs continuing to push higher. According to the Bank of England's latest Money and Credit report, gross mortgage lending fell to £16.2bn from £18.1bn in September, but net mortgage approvals - an indicator of future borrowing - for house purchases jumped to 47,400 from 43,700 a month previously. Consensus had been for a smaller increase, to 45,300.

Fed rate-cut hopes rise

Lifting the mood on markets was a positive start on Wall Street after GDP figures for the third quarter came in ahead of expectations, leading to a rally in bonds. GDP grew 5.2% in the three months to September, ahead of the initial estimate of 4.9% growth. The figures showed that consumer spending rose 3.6% from July to September, a downward revision on a previous estimate of 4%.

Yields on 10-year US Treasuries were down 3.1 basis points at 4.294% by the close in Europe, on increased hopes that the Federal Reserve will start cutting interest rates by the end of the first quarter of 2024.

The data comes one day after dovish comments from Federal Reserve governor Christopher Waller, a well-known hawk, who said that current monetary policy was working to bring inflation closer towards the 2% target.

According to the CME's FedWatch Tool, markets widely expect no change in interest rates over the next two meetings in December and January, but there's now a 46.4% chance of a rate-cut of at least 25 basis points, up from 34.7% on Tuesday.

Ferrovial rises on Heathrow sale

Spanish infrastructure firm Ferrovial was trading higher after agreeing to sell its entire stake in FGP Topco, the parent company of Heathrow Airport, for £2.4bn. Ferrovial will sell a 10% stake to the Saudi Public Investment Fund (PIF) and a 15% stake to French private equity firm Ardian.

French car maker Renault was rising after confirming that it is moving ahead with plans to spin off its electric-car division Ampere into a publicly listed company, despite doubts surrounding an IPO and potential dilution of value for investors.

London's FTSE 100 was dragged lower by falls in the financial sectors, with Prudential, Standard Chartered, Aviva and HSBC all nursing losses. Aviva was also hit by a downgrade by Deutsche Bank from 'buy' to 'hold'.

UK-listed car and bike parts retailer Halfords tumbled as it narrowed its guidance range for annual profit as it highlighted a softening in demand for big-ticket discretionary categories.

Shares in sporting goods retail and manufacturing sectors across Europe were rising after Foot Locker beat earnings expectations and guided to better-than-estimated sales in the pivotal fourth quarter. Europe-listed names like JD Sports Fashion, adidas and Puma were all in demand.