Europe close: Stocks rise for fourth session in a row on stimulus hopes, UK stability

European stocks closed higher on Tuesday, making it four successive rises amid growing expectations of central bank stimulus and following the removal of political uncertainty in the UK.

The benchmark Stoxx Europe 600 index was up 1%, while Germany’s DAX and France’s CAC 40 were both 1.3% and 1.5% higher respectively.

Stocks had racked up healthy gains on Monday as it emerged that Theresa May was set to succeed David Cameron as Prime Minister this week.

The tone was also underpinned by comments from Japanese Prime Minister Shinzo Abe, who promised on Tuesday to stimulate the country’s economy. Abe, whose ruling party and coalition won a majority in upper-house elections on Sunday, said he wants “the swift formulation of comprehensive, bold economic measures".

Markus Huber, a trader at City of London Markets, said investors were continuing to cheer the fact that at least some degree of certainty has returned concerning the UK government.

“Furthermore much better than expected earnings from Daimler, Alcoa kicking off the US earnings season on a positive note with a beat in earnings and ongoing optimism that Japan will step up efforts to combat low inflation and weak growth all are adding to the positive sentiment,” he said.

Nevertheless, he said it remains to been seen whether the rally has legs, especially as regards the new PM’s plans to trigger Article 50, which will start the formal two process to take the UK out of the EU.

Investors were also looking ahead to Thursday’s Bank of England rate announcement amid growing expectations of a rate cut in the wake of the UK’s decision to leave the European Union.

Bank of America Merrill Lynch said it expects the BoE to cut by at least 25 basis points. BofA said the central bank had nothing to gain by waiting.

“Rate setters have already recognised Brexit as a bad economic shock. Plenty of data confirm that view. Mark Carney said easing would probably be required. Even if no data were available, we believe the right action would be to cut: just in case.”

In European corporate news, Shire rallied after the US Food and Drug Administration approved its lifitegrast eye drops for treating signs and symptoms of dry eye disease.

Daimler was also a high riser after the car maker’s second-quarter results beat analysts’ expectations.

Earlier, data from Destatis showed German inflation improved in line with forecasts in June but remained well below the European Central Bank’s target of just below 2%.

The consumer price index, on a harmonised basis or HICP, rose 0.1% on the month and by 0.2% on the year, according to the final, which was unchanged from the previous estimate.

In May HICP inflation grew 0.4% on the month and was unchanged on the year.

Consumer prices according to national standards climbed 0.1% on the month and by 0.3% on the year, as expected by analysts and in line with the first estimate.

Energy prices continued to slide but at a slower pace to the previous month, down 6.4% in June compared to a 7.9% fall in May.

Food prices rose 0.1% in June compared to a year ago, as a jump in vegetable prices was offset by a decrease in dairy prices.