Europe midday: Stocks jump on ECB rate-cut hopes

The Stoxx 600 index was up 1% on Friday as investor optimism surrounding interest-rate cuts in Europe prompted a return in risk appetite.

"Concerns over the likely delay to the Fed’s first rate cut looks to have eased for now despite Wednesday’s higher-than-expected inflation reading. Instead, traders in Europe can look towards the projected ECB and BoE June rate cuts for bullish inspiration," said Joshua Mahony, chief market analyst at Scope Markets.

By 1230 CEST, the pan-European index was 5.02 points higher at 509.57, with gains of 0.9% or more seen across London, Milan, Madrid, Frankfurt and Paris.

Rate-setters in Frankfurt stood pat on rates on Thursday, but said that it would be appropriate to lower interest rates at its next meeting in June if its next set of projections increased their confidence that inflation was headed lower. The European Central Bank said gauges of underlying inflation were "easing" and wage increases "gradually moderating".

"The ECB made it quite clear that absent any major surprise on the disinflationary process and in its upcoming forecast update, rates will be cut at the next policy meeting in June," said Nicola Nobile, chief Italy economist at Oxford Economics.

"What happens after June, is particularly uncertain. But our expectation is still that the ECB will embark on a of a series of cuts, justified by a lower inflation forecast than consensus."

In economic data, UK GDP grew 0.1% in February following 0.3% growth the month before, in line with consensus expectations. January’s figure was revised up from a previous estimate of 0.2%. growth. The figures suggested GDP did not contract in the quarter between January and March, raising hopes that a recession is over. This follows a contraction in the third and final quarters of 2023.

Meanwhile, German inflation fell in March, matching the lowest level since mid-2021, according to secondary estimates released on Friday. The annual rate of inflation was 2.3% last month, in line with the preliminary estimate and analysts' estimates. This was down from 2.7% in February and 3.1% in January, matching the same level as November, which was the lowest reading seen since June 2021.

Market movers

UK housebuilders were performing well after positive broker commentary. JPMorgan said in a research note that it was taking a more positive stance on the sector this year, "as we see scope for likely positive sentiment/newsflow from the upcoming UK election (with housing expected to be a key focus) before positioning for a recovery in 2025E, likely aided by rate cuts".

Meanwhile, RBC Capital Markets upgraded its rating on Taylor Wimpey to 'outperform', saying the business "has the wind behind its sales, and we like the cut of its jib". Sector peers Persimmon, Redrow and Barratt Developments were also putting in decent gains.

Mining stocks in London were also providing a lift, as commodity prices continued to rise. Gold prices were up 1.8% at new record highs, while silver gained 3.4% and copper rose 2.3%. Rio Tinto, Antofagasta, Anglo American and Glencore all rose strongly.

German drug company Evotec surged 6% after Deutsche Bank analysts upgraded the stock from 'hold' to 'buy', forecasting strong earnings growth in 2024.

French bank Societe Generale was a high riser, jumping 5% a day after announcing a deal to sell its professional equipment financing business to BPCE for €1.1bn.