Europe midday: Stocks extend gains as eurozone inflation falls

European stocks rose to their highest in two and a half months on Thursday after a huge drop in eurozone inflation raised hopes that the European Central Bank might move to cut rates earlier than expected.

The Stoxx 600 index was up 0.4% by 1154 CET, with broad-based gains on all major indices across the continent. The index was on track to hit its highest close since 15 September.

The annual increase in eurozone consumer prices slowed to just 2.4% this month, the lowest rate of inflation since January 2021, closing in on the ECB's target for headline inflation of 2%. This was down from 2.9% in October and well below the 2.7% expected by economists. Meanwhile, core annual inflation eased to 3.6% from 4.2% the month before and under the 3.6% forecast.

"With the target rate now in touching distance, there is a good chance we see the focus shift towards questions over whether we will see the ECB overshoot the target by driving inflation well below 2%," said analyst Joshua Mahony from Scope Markets. "With the ECB now staring at a distinct possibility of below target inflation within Q1 2024, markets will more than likely start bringing forward expectations over the first rate cut (currently priced for April)."

Also lifting sentiment was a rebound in German retail sales which rose by 1.1% in October, rebounding after a 0.8% decline in September, and well ahead of the 0.4% gain expected by analysts. "This is the first bit of good news in Germany’s economy for a while," said economist Claus Vistesen from Pantheon Macroeconomics.

Over in the US, October's personal consumption expenditures index – the Federal Reserve's preferred measure of inflation – due out at 1430 CET, is also expected to show annual core inflation easing to 3.5% from 3.7% in September.

"A softer-than-expected figure could further fuel expectations of an early Fed cut, while a stronger-than-expected set of figures should, in theory, calm down the dovish enthusiasm and call for a rebound in the yields," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

All eyes on OPEC+

Europe-listed oil stocks were trading higher, including BP, TotalEnergies, Repsol and Shell, ahead of the conclusion of a keenly awaited OPEC+ meeting later on, which will decide on the next steps in production policy. The meeting had been delayed by a week due to some reported disagreements between member nations.

"There has been widespread disagreements on quotas amongst the smaller OPEC members who are reluctant to forego the extra barrels and the revenue that goes with them," said analyst Michael Hewson from CMC Markets.

In London, shares in Dr Martens tumbled 26% after the iconic bootmaker warned on profits as it said the Autumn/Winter season has been hit by warm weather and weaker traffic.

Banking group NatWest was up 4% after JP Morgan analysts added the stock to their 'top picks' list and upgraded their rating from 'neutral' to 'overweight'.