European stock markets hit record highs on rate cut hopes
LONDON — European stock markets struck fresh record highs on Friday on growing hopes that central banks are close to cutting interest rates.
Wall Street stocks were narrowly mixed, while oil prices wobbled as investors tracked developments in the Middle East.
London, Paris, Frankfurt and Amsterdam all hit new heights, with shares also benefiting from strong first-quarter earnings.
“European markets are on the rise despite concerns that a resurgence in UK growth could yet hinder hopes for a dovish pivot from the Bank of England in the months ahead,” noted Joshua Mahony, chief market analyst at Scope Markets.
Britain exited a shallow recession with better-than-expected growth in the first quarter, official data showed on Friday, in a boost to embattled Prime Minister Rishi Sunak ahead of the country’s general election this year.
In the United States, data has indicated that the labor market is beginning to soften, giving the Federal Reserve room to ease monetary policy.
The forecast-beating figures showing that unemployment claims rose to their highest level since August followed news that far fewer new posts were created in April than expected.
In reaction, US Treasury bond yields, a proxy for interest rates, have moved lower.
Assumptions
The US readings soothed worries that borrowing costs would remain elevated through the year after a series of above-estimate inflation readings in the first four months.
Speculation is growing that the Fed will cut rates in September, though analysts urged caution as decision-makers were keen to see evidence that prices are being brought under control.
US inflation data for April will be released this week, and survey data saw consumer expectations on inflation tick higher.
“The market’s assumption throughout this week is that there won’t be an inflation scare and that the Fed will find some policy comfort in the coming inflation reports,” said Briefing. com analyst Patrick O’Hare.
Also helping boost sentiment, he said, was Fed chair Jerome Powell’s assurance last week that the central bank’s next rate move wouldn’t be a hike, allowing market participants to trade around the idea of a rate cut.
The Bank of England on Thursday signaled a rate cut this summer after keeping UK borrowing costs at the highest level in 16 years to tame inflation.
The European Central Bank is expected to cut its rates in June.
With Wall Street performing strongly on Thursday, Asian investors pushed regional stocks higher ahead of the weekend.
Hong Kong continued an impressive run that has seen it enter a bull market after climbing more than 20 percent from its January lows.
The gains were boosted by news that city officials were considering a plan to exempt individuals from paying tax on dividends on mainland stocks bought through the Hong Kong exchange.
Elsewhere Friday, oil prices extended gains as investors tracked developments in the Middle East, with state-linked Egyptian outlet Al-Qahera News reporting on Thursday that both Hamas and Israeli negotiators had left Cairo after two days of talks aimed at finalizing a ceasefire deal.