Europe close: Stoxx 600 hits another high on rate-cut hopes

Europe stocks jumped on Thursday as monetary-easing hopes drove the Stoxx 600 index to another all-time closing high, with strong gains in London, Frankfurt and Madrid offsetting a subdued performance in Paris and Milan.

A surprise interest-rate cut from Switzerland spurred a rally across global stock markets, while reassuring words from both the Federal Reserve and Bank of England bolstered risk appetite.

The Stoxx 600 finished 0.9% higher at a new peak of 509.77, bolstered by a 1.9% surge on the FTSE 100 as the UK benchmark index rose to its highest since May 2023.

The Swiss National Bank made the unexpected move to cut interest rates, becoming the first central bank from a major developed economy to cut rates in the current cycle. The SNB reduced its headline rate by 25 basis points to 1.5%, after inflation fell to 1.2% in February, its lowest level for well over two years.

In London, the Bank of England left interest rates on hold on Thursday, as widely expected. The rate-setting Monetary Policy Committee voted eight-to-one to leave the cost of borrowing unchanged at 5.25%, a 16-year high. However, with inflation now well off highs, the MPC is expected to start reducing rates this year.

Governor Andrew Bailey said: "In recent weeks we’ve seen further encouraging signs that inflation is coming down. We’re not yet at the point where we can cut interest rates, but things are moving in the right direction."

“Considering nothing actually changed today, it feels like a lot has happened,” says Danni Hewson, head of financial analysis at AJ Bell. “London markets have had a sublime day, with the FTSE 100 closing at a 10-month high as investors grow increasingly optimistic that rate cuts are on the way."

Meanwhile, on Wednesday evening, the Fed kept interest rates unchanged at 5.25-5.50%, but nudged its forecasts for economic growth higher for the next two years. While the central bank also predicted that inflation would fall slower than expected, Fed chair Jerome Powell said "the risks of achieving our inflation goals are coming into better balance".

The so-called FOMC 'dot plot' still suggests cuts of 75 basis points this year, unchanged from the last meeting despite a recent rise in both the consumer-price and producer-price indices, which analysts said was unexpectedly dovish.

In economic data, the latest HCOB flash Eurozone composite PMI output index came in at 49.9, a nine-month high and an improvement on February’s 49.2. It was also only marginally below the neutral 50.0 level. A reading below 50.0 indicates contraction, while one above it suggests growth.

Market movers

Pharma developer Argenx surged 14% after Japanese rival Chugai Pharmaceutical reported disappointing results for neuromuscular disease treatment, which spells good news for the Dutch competitor.

UK banking giant Barclays finished 4% higher after Bloomberg reported the lender was set to axe several hundred positions in the coming months, though sources familiar with the matter said the layoffs were part of Barclays' routine process of shedding underperforming employees.

Sector peer Virgin Money advanced as it formally agreed to be taken over by Nationwide in a £2.9bn deal. The news on Thursday confirmed a preliminary agreement announced on 7 March.

Meanwhile, London's 3i Group was among the top performers on the Stoxx 600 as it said in its third-quarter results that its largest portfolio company, the Benelux discount retailer Action, recorded notable growth in the 2023 financial year.