Europe close: Stocks rise as markets gear up for Fed rate cut

European stocks rose to a two-week high on Tuesday as global markets geared up for an eagerly anticipated Federal Reserve rate cut the following day, with investors this side of the Pond shrugging off another round of weak economic data from Germany.

The Stoxx 600 index finished the session up 0.4% at 517.19, its highest close since 3 September, with broad-based gains across the continent.

A 25-basis point (bp) reduction in the Federal Funds Rate is priced into markets already, ahead of the conclusion of the Fed policy meeting at 1800 CEST on Wednesday, though investors are uncertain whether the central bank will go ahead with a 50bp cut in light of worsening economic conditions in recent months.

According to the CME's FedWatch tool, traders have increased the likelihood of a 50bp cut to 61% as of Tuesday afternoon, compared with just 34% a week ago.

Back in Europe, German business sentiment deteriorated more than expected in September, according to a survey released by the ZEW Center for European Economic Research in Mannheim.

The indicator of economic sentiment fell to 3.6, down 15.6 from August’s reading and well below expectations for a reading of 17.1, while assessment of the economic situation fell 7.2 points to -84.5. This marked the lowest since May 2020.

Meanwhile, oil prices jumped as Hurricane Francine continue kept 12% of crude output shut down in the Gulf of Mexico. Brent crude rose 1.4% to $73.75 a barrel.

Market movers

Shares of Barry Callebaut surged by 7% after Barclays raised the Swiss-Belgian chocolate maker's rating to ‘overweight’ from ‘underweight’. Analysts hiked their target price on the shares from CHF1,450 to CHF1,800, citing a normalising cocoa price and progress on the group's cost-saving programme.

Thule Group fell 3% as second-quarter revenue fell at the Swedish auto transport products maker, while debt rose.

Playtech slid 5% as the British gambling technology firm finally agreed to sell its Italian unit Snaitech for €2.3bn, including debt, to betting company Flutter Entertainment, which rose 2%.

Defence stocks were firmly out of favour on Tuesday, with Kongsberg Gruppen, Rheinmetall, BAE Systems, Leonardo, Thales and Dassault Aviation all registering sharp falls.

B&Q and Castorama owner Kingfisher jumped 11% in London after it lifted the lower end of its full-year profit guidance.