Europe midday: Stocks jump as easing inflation raises hopes of ECB rate cut

Stocks put in decent gains on Tuesday morning after data showed that inflation in the Eurozone eased more than anticipated this month, raising hopes that the European Central Bank (ECB) may loosen monetary policy sooner than expected next year.

After a tentative start, markets were building on gains by lunchtime with the pan-European Stoxx 600 index up 0.7% at 434 by 1219 CET.

The single-currency consumer price index (CPI) was up 2.9% on last year in October, significantly down from 4.3% in September. This was the lowest rate in two years and below the 3.1% consensus forecast, on the back of continued energy price deflation and easing food price inflation. Excluding volatile items like food and energy, core inflation slowed to an annual rate of 4.2%, from 4.5% – more or less as expected.

Analysts at Oxford Economics said the drop in core inflation marries with "growing weakness" in demand across the Eurozone, evidenced by Tuesday's GDP figures which showed that the bloc contracted by 0.1% during the third quarter.

"All of this tallies with our assessment of an earlier-than-expected ECB policy pivot. We think the ECB will start with rate cuts already in early Q2 2024. Despite that, we expect headline inflation to dip below target next year."

Analysts at Pantheon Macroeconomics had a similar view, saying that core inflation should fall more quickly than the ECB expects between now and March 2024.

"This, in turn, should be enough for the ECB do lower its forecasts in December and March, and as a result a first rate cut in March," they said. However, they added: "Still-high services inflation and wage dynamics are the main risks to this call."

In other news, retail sales in Germany unexpectedly slumped 0.8% in September, government figures revealed on Tuesday, capping off a weak third quarter for the economy. This was better than the 1.2% decline seen in August but under analysts' expectations of an increase of 0.5%.

BBVA bucks the trend as shares fall

Spanish banking giant BBVA was out of favour despite beating forecasts with a 13% rise in third-quarter net profits to €2.1bn, as it booked a 29% increase in provisions and reported a loss in Turkey.

Sector peers CaixaBank and Bankinter initially fell on negative readacross, but had raced into positive territory by midday.

Italian banks were providing a big lift to the FTSE MIB, which was outperforming other indices with a gain of 1.4%, with Bper Banca, Banca Monte Paschi Siena, Banco Bpm and Intesa Sanpaolo all rising strongly.

In Frankfurt, banking stocks Commerzbank and Deustche Bank were also putting in a decent performance.

Belgian drinks giant AB InBev saw shares jump after reporting a 5% increase in revenue in the third quarter to $15.1bn and a 4.1% rise in EBITDA. The company reiterated its guidance for 4-8% EBITDA growth in the medium term.

In London, BP was down after the oil titan missed profit forecasts for the third quarter. The company reported an underlying replacement cost profit of $3.3bn, an improvement from the $2.6bn recorded in the second quarter but below the $4bn expected by analysts. Shell also fell.