Europe close: Shares finish year higher on rate cut hopes for 2024

European shares finished higher on the last trading day of the year as investors looked ahead to 2024 hoping interest rates would be cut sooner rather than later.

The pan-regional Stoxx 600 finished 0.20% higher at 479.02 with all major bourses up. The European benchmark gained 12.7% over the year.

Markets have been making gains since the US Federal Reserve hinted two weeks ago that it could consider interest rate cuts next year. However, policy makers at the European Central Bank (ECB) and Bank of England have made hawkish comments since then, reiterating that the fight against surging inflation is not over.

"This year was completely different than what was expected. We were expecting the US to enter recession, but the US printed around 5% growth in the Q3," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"We were expecting the Chinese post-Covid reopening to boost the Chinese growth and fuel global inflation, but a year after the end of China’s zero-Covid measures, China is suffocating due to an unexpected deflation and worsening property crisis."

"We were expecting last year’s negative correlation between stocks and bonds to reverse – as recession would boost bond appetite but batter stocks. None happened."

Crude oil prices moved slightly higher after a fall in US inventories. Brent crude traded just above $77 a barrel, still well below levels of the last two years despite geopolitical tensions and production cuts by major suppliers.

“The price has whipsawed this year as expectations of sluggish demand, inventory build ups and conflicts in key locations all amalgamated into volatility. The overall theme of the year though seems to indicate that heat has come out of the price for now – but that can change at very short notice,” said Hargreaves Lansdown analyst Sophie Lund-Yates.

In economic news, UK house prices fell by a higher-than-expected 1.8% year on year in December, mortgage lender Nationwide said on Friday.

Expectations were for a 1.4% fall. Prices remained flat on a monthly basis.

Reporting by Frank Prenesti for Sharecast.com