Europe close: Stocks at two-month high on rate-cut hopes

European stocks finished the week on a high note, jumping over 1% on Friday as investors assessed what incoming economic data means for future monetary policy decisions.

UK retail sales worsened in October – marking the 19th monthly contraction – while inflation estimates from the Eurozone were unrevised, confirming a huge drop in price pressures last month.

Meanwhile, a forth straight week of declines in the price of oil – dropping around 11% over that period – along with rapidly declining global bond yields "have given risk-on sentiment another boost", said analyst Alex Rudolph from IG.

The Stoxx 600 index finished 1.01% higher at 455.82, with major indices across Europe performing strongly.

The index ended the week up 2.2% – its third consecutive weekly gain – at its highest closing level since 20 September. It has now risen 6.1% in the past three weeks.

Markets react positively to UK and Eurozone data

UK retail sales declined by 0.3% in October after a revised 1.1% drop the previous month with volumes dropping to their lowest since February 2021. Analysts were expecting a 0.3% gain.

The data follows figures earlier this week which showed a bigger-than-expected drop in UK inflation in October, while pay growth has continued to ease, "reinforcing the likelihood that the next move in interest rates is set to be down", according to analysts at Oxford Economics.

In other news, secondary estimates for the Eurozone consumer price index in October confirmed the initial figures, showing that headline annual inflation sunk to 2.9%, from 4.3% in September. Core inflation was confirmed at 4.2%, down from 4.5% the previous month.

Economist Claus Vistesen from Pantheon Macroeconomics expects inflation to undershoot the European Central Bank's forecasts next year, with core inflation to reach 2.5% by the end of the first quarter. "This is more quickly than the ECB expected in September, guiding our view that the ECB will have room to cut its policy rate earlier than markets expect, in March," he said.

Oil prices were rebounding after a huge tumble on Thursday on the back of reports of higher supply in the US and weak demand from China. Brent crude was up 3.4% at $80.04 a barrel after dropping over 4% the previous session to a four-month low.

Banks and oil stocks lead the rise

Banks across the continent were performing well, with Standard Chartered, BNP Paribas, Societe Generale, HSBC, Barclays and Bankinter all putting in decent gains. UK lender NatWest was a standout performer, finishing nearly 4% higher after analysts at Barclays lifted their rating on the stock from 'equal weight' to 'overweight'.

Oil stocks were higher after heavy falls the previous session as crude prices slid. Shell, TotalEnergies, Repsol and BP were all trading in positive territory.

Also attempting a recovery was Burberry after an 11% drop on Thursday following warning about a luxury slowdown, with sales falling in China. Burberry closed up 1.2% in London, while European peers LVMH, Christian Dior and Kering – which all declined the previous session – were also bouncing back.

Siemens AG was also higher, extending gains after delivering record fourth-quarter results on Thursday.