© Reuters. FILE PHOTO: A chart of the German stock price index DAX is pictured at the Frankfurt Stock Exchange, Germany, November 23, 2022. REUTERS/Staff
Written by Sruthi Shankar and Devik Jain
(Reuters) – The European index closed at its highest level in three months on Thursday, propelled by gains in real estate stocks, minutes after the Federal Reserve meeting in November, indicating a slowdown in the pace of interest rate hikes.
The pan-European STOXX 600 rose 0.5% to its strongest level since August 18, although volumes were light due to the US market holiday for Thanksgiving.
Wall Street ended with strong gains on Wednesday after US central bank meeting minutes showed that a “significant majority” of policymakers agreed that it “would soon be appropriate” to slow the pace of interest rate hikes.
“This was in line with expectations around indicating smaller interest rate increases, however, it also confirms that the final interest rate will be higher,” said Karim Chedid, head of investment strategy for iShares EMEA at BlackRock (NYSE: NYSE).
“The different thing for the ECB is that the recession we expect in Europe will be more prolonged. This means that the ECB may not be able to go as far as the Fed and will eventually have to start cutting interest rates sooner than the Fed.”
Minutes of the European Central Bank’s October meeting showed that policymakers fear inflation may be taking hold, warranting further rate hikes, but how long and to what extent remains a debate.
Separately, ECB Governing Council member Isabel Schnabel, the most influential hawk, has disputed recent calls from many of her colleagues to increase interest rates, saying this is premature and potentially counterproductive.
“Recent comments by ECB officials suggest that the discussion at the December meeting will be more heated and contentious,” Carsten Brzeski, global head of macroeconomics at ING, said in a note.
“We currently expect the ECB to raise interest rates by 50 basis points in December and by another 25 basis points in February. The big question will be about quantitative tightening (QT) or in other words, shrinking of the ECB’s balance sheet.”
Adding to the positive mood on Thursday, a survey by the Ifo institute showed that German business sentiment rose more-than-expected in November and that pessimism heading into the coming months had abated considerably.
The benchmark STOXX 600 rose more than 15% from its September 29 low as an upbeat earnings season and hopes of a rate hike by the Federal Reserve overshadowed concerns about a possible recession in Europe.
The interest rate-sensitive real estate sector was the best performer in Europe, rising 2.5% as German government bond yields fell. [GVD/EUR]
LEG Immobilien rose 6.8% after that Morgan Stanley (NYSE:) shares of the German real estate company rose to “overweight”.
Shares of the world’s largest classifieds company Adevinta and Polish insurer PZU jumped 7.2% and 6.6%, respectively, after reporting strong third-quarter results.