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European Stocks Continue to Rise as Investors Hope for a Slowdown in Fed Rate Hikes

European markets were higher on Thursday as investors assessed the latest meeting minutes from the U.S. Federal Reserve. The minutes showed that the Fed is still considering further stimulus measures, which investors interpreted as a positive sign.

November 24, 2022
9 minutes
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European markets were higher on Thursday as investors assessed the latest meeting minutes from the U.S. Federal Reserve. The minutes showed that the Fed is still considering further stimulus measures, which investors interpreted as a positive sign.

The Stoxx 600, a pan-European index, was up more than 0.6% by late morning, reaching its highest point since mid-August. Chemicals stocks led the way, gaining 1.1%. All sectors and major bourses were trading in positive territory.

The minutes from the Fed's November meeting showed that the central bank is making progress in its fight against inflation and is planning to slow the pace of interest rate hikes. This means that rates will be increased at a smaller rate through the end of this year and into 2023.

The minutes from the meeting stated that a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.

European investors reacted to Wednesday's flash November PMI readings from the euro zone, which showed that the 19-member currency bloc has entered recession, but the downturn in business activity is slowing slightly.

After the Federal Reserve signaled that it expects to soon begin raising interest rates at a slower pace, markets in the Asia-Pacific region traded higher overnight. U.S. stocks also closed higher Wednesday, though the session was choppy.

The German business climate index from the Ifo Institute rose to 86.3 points in November, up from 84.5 in October. This indicates improving conditions for businesses in Germany.

"Companies are less satisfied with their current business, but pessimism about the coming months has decreased sharply," said Ifo President Clemens Fuest. "The recession could be less severe than many had expected."

According to Fuest, the index climbed significantly in manufacturing, where companies were less pessimistic about the future, but assessed their current situation as worse. This indicates that manufacturing companies are less optimistic about the future, but feel that their current situation is worse off.

"The number of new orders fell again," he said. "While uncertainty about future business development remains high, it did fall a little. But in energy-intensive industries, uncertainty rose further."

Sterling rose above $1.20 on Wednesday evening as the US dollar weakened in response to weak PMI data and minutes from the last Federal Reserve policy meeting.

The pound continued its upward trend on Thursday, gaining another 0.3% to trade at around $1.209. The euro and Japanese yen also made gains against the retreating greenback.

Jean Christophe-Babin of Italian luxury fashion house Bulgari Group says that while demand for entry-level products tends to contract during economic recessions, higher-end consumers still have disposable income.

There was little movement in share prices among European blue chip companies on Thursday morning.

Elekta, a Swedish manufacturer of radiation therapy equipment, fell more than 4% on the Stoxx 600 after missing second-quarter earnings expectations.

At the top of the index, Universal Music Group rose 3.3%.

If a short-seller's prediction comes true, investors in a British supermarket company will face more pain.

The hedge fund is currently betting that shares in the grocer will fall by 44%. If their prediction comes true, they stand to make a profit of £32.6 million.

The fund's chief investment officer also believes that the supermarket will raise fresh capital by diluting shareholders year after year to keep itself afloat in a challenging environment.

Rob Luna, chief investment strategist at asset manager Surevest, believes that investors should buy into one large-cap stock right now. Luna cites the stock's strong fundamentals and attractive valuation as reasons to invest. He calls its CEO a "visionary leader."

Luna advised investors to reallocate into smaller companies, naming two stocks that he considered to be the best in their respective fields.

European markets are set to open higher on Tuesday, with investors in the region appearing to shrug off concerns about China's tightening of Covid restrictions. U.S. and Asia-Pacific markets have been under pressure in recent days as the restrictions have begun to impact output.

According to data from IG, the U.K.’s FTSE index is expected to open 27 points higher at 7,407, Germany’s DAX up 33 points at 14,419, France’s CAC up 20 points at 6,653 and Italy’s FTSE MIB up 70 points at 24,433.

The release of preliminary consumer confidence data for the euro zone in November provides insights into the economic health of the region. The data can help policymakers and businesses make informed decisions about the future.

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Eric Ng
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Eric Ng
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