Europe close: Stocks jump as ECB cuts rates, inflation falls

European stocks finished with strong gains on Thursday after the European Central Bank cut interest rates for the third time this year and gave dovish comments about the policy outlook, while inflation data showed that price pressures eased more than expected last month.

That came alongside a flurry of corporate earnings and updates from a number of heavyweight names across Europe, including Nokia, Publicis, Nestle and Merck.

The Stoxx 600 index closed 0.8% higher at 523.91, almost reversing two straight days of losses. Benchmarks in Paris and Milan in particular rose strongly, up 1.2% and 1.1% respectively, while Frankfurt gains 0.8% and London increased 0.7%.

At 1415 CEST, the European Central Bank lowered its benchmark deposit rate to 3.25% from 3.5% as expected. In a statement, the Governing Council said the "disinflationary process is well on track".

"The decision to cut rates only five weeks after the last cut and with only very few pieces of economic data since then, suggests that the ECB must have become much more concerned about the eurozone’s growth outlook and the risk of inflation undershooting the target," said Carsten Brzeski, global head of macro at ING.

Earlier on Thursday morning, data from Eurostat showed that the annual rate of eurozone consumer price inflation came in at just 1.7% last month – its lowest since April 2021. This was revised down from the flash reading of 1.8% released two weeks ago and well below the 2.2% rate registered in August.

According to Bas van Geffen, senior macro strategist at Rabobank, comments from the ECB were "slightly more dovish" in tone despite there not being any official guidance on future monetary policy. "Even though [ECB president Christine] Lagarde did not flag it explicitly, today’s decision raised the odds of earlier cuts in 2025 than we had pencilled in prior to the meeting," van Geffen said.

Market movers

Nokia fell 3% as the Finnish telecoms giant said that operating profits this year would come in at the lower end of the €2.3bn-2.9bn guidance range.

Germany science and tech giant Merck jumped nearly 8% after raising its medium-term sales projection for its electronics business due to the boom in AI demand.

Pest control services group Rentokil Initial surged 9% in London after reassuring investors with unchanged guidance following two profit warnings already this year. The company reported a steady third quarter with revenues unchanged year-on-year at £1.38bn.

German pharma and lab equipment group Sartorius Stedim Biotech jumped 18% after reiterating its full-year outlook. "In view of the figures for the first nine months, we are convinced that we will achieve our targets for fiscal 2024, and are optimistic for the future," said chief executive René Faber.

Leading the fallers was UK paper and packaging group Mondi, dropping 7% after underlying core profit fell in the third quarter in "muted" trade, mainly due to more planned maintenance shuts.

Nestle rose 3% despite the Swiss food manufacturer cutting its organic sales growth forecasts for the second time this year to 2%. The company trimmed its estimate from 3%, which had already been lowered from 4% initially.

French advertising group Publicis was also up 3% after lifting its full-year organic revenue forecast to 5.5% from 5% despite a "challenging" macro environment, as it reported a jump in third-quarter revenues.