European stocks climb on optimism over interest rate cuts By Reuters

By Khushi Singh, Ankika Biswas and Sruthi Shankar

(Reuters) – European shares climbed on Tuesday as government bond yields eased after comments from European Central Bank officials and data that confirmed cooling inflation in the euro zone.

The pan-European closed up 0.4%, with New York’s also trading near all-time highs as investors expect major central banks including the Federal Reserve and ECB to start cutting interest rates next year.

Travel and leisure index rose 1.8%, leading sectoral gains in Europe, followed by miners and financial services.

Data confirmed that euro zone inflation slowed sharply to 2.4% in November on a year-on-year basis, although many economists expect price pressures to tick up again in the coming months.

“With inflation now within touching distance of the much coveted 2% level, the focus for the ECB will certainly now shift to keeping the eurozone economy alive, an economy which has been teetering on the brink of recession in 2023,” said Michael Field, European market strategist at Morningstar.

“The ECB, like the other major central banks, has been using language in its interest rate policy statements to give itself the ability to hold-off on rate cuts should inflation rally again. However, today’s number gives no suggestion of this happening soon.”

ECB member Francois Villeroy de Galhau said lower interest rates are seen sometime in 2024, reaffirming that inflation should be back down to 2% by 2025 at the latest.

Driven by rate cut optimism, the STOXX 600 is on track for its second monthly gain in December and a double-digit advance of 12.4% for the year.

The STOXX 600, however, has lagged its U.S. peer S&P 500’s 24% yearly advance, with the latter also benefiting from investors flocking to artificial intelligence stocks.

Also aiding the global mood, the Bank of Japan maintained ultra-loose policy settings in a widely expected move, awaiting more evidence on whether wages and prices would rise enough to justify a shift away from massive monetary stimulus.

Among individual stocks, UBS shares added 3.4% after activist investor Cevian Capital reported a 1.3% stake in the bank.

Covestro gained 1.4% following a report that the Abu Dhabi National Oil Co was preparing to raise its offer for the German chemicals maker.

Casino dropped 8.2% after the French retailer entered into exclusive talks to sell all of its big stores to rivals Les Mousquetaires and Auchan Retail.

In UK, Superdry tumbled 17.5% to a record low after the fashion retailer warned of a hit to annual profit.