Surging commodity stocks prop up European shares
European shares inched up on Monday but gains remained in check as a rise in commodity-linked stocks was offset by uncertainty around the outlook for interest rates.
The pan-European STOXX 600 index rose 0.1% to hover below record highs hit last week.
Miners and oil & gas indexes climbed about 0.6% each, leading gains among European sectors as copper prices surged to record highs helped by China’s property support measures and better-than-expected industrial data.
Gold prices also hit fresh peaks, while crude prices edged higher amid political uncertainty in major oil producing countries including Iran and Saudi Arabia.
Countering the positive impact from rising commodity prices on equities, euro zone sovereign bond yields climbed after officials from the European Central Bank (ECB) and the Federal Reserve warned that the monetary easing path remained uncertain.
“The ECB will not shy away from starting its easing cycle before the Fed in June, with further rate cuts to follow: a total of 100bp cuts are in our books for 2024, with risks tilted to only 75bp (i.e. quarterly moves),” noted Vincent Chaigneau, head of research at Generali Investments.
Markets are pricing in around 65 bps (basis points) of ECB rate cuts in 2024, as per LSEG’s rate probabilities app, compared with 67 bps on Friday.
board member Isabel Schnabel said in an interview last week with Nikkei the central bank may slash interest rates in June, but should be cautious about further cuts in borrowing costs given uncertainty over the outlook.
Italian stocks slid 1.2%, with banks such as Banca Popolare di Sondrio and Banco BPM among the top decliners.
TotalEnergies climbed 1.2% after the French energy major’s Chief Executive Patrick Pouyanne said it had struck its first supply deal with Dangote Refinery in Nigeria following a meeting with Africa’s richest man, Aliko Dangote.
Volkswagen dipped 1.3% after Morgan Stanley downgraded the automaker to “under-weight” from “equal-weight” and turned cautious on German carmakers overall, pointing to shrinking margins and the potential for trade disputes.
Stock markets in Switzerland, Sweden and Denmark were closed for Whit Monday holiday.
The pan-European STOXX 600 dipped 0.1%, with the rate-sensitive real estate sector among top decliners, pressured by higher euro zone bond yields.
A report showed European Central Bank board member Isabel Schnabel advocated caution about further interest rate cuts after a likely first one in June, bringing uncertainties about the outlook for rate reductions to the fore.
On the data front, a final reading of euro zone inflation confirmed a previous report that showed prices increased 2.4% on an annual basis in April.
ECB policymakers have not offered clarity on the outlook of rate cuts beyond June, while US Federal Reserve policymakers have not openly shifted their views about rate cut timing despite recent encouraging US economic data.
“The market is in a good place in medium term. Central banks are doing what they can and they still want to cut this year, but just very steadily,” said Chris Beauchamp, chief market analyst at online trading platform at IG.
“The worry is if inflation starts to move higher, so that’s one thing to keep an eye on, particularly heading into June and beyond.”
The main equities index managed to end its second straight week in gains, rising for nine straight sessions till Wednesday, as a robust earnings season offered a fresh boost to the prevailing upbeat investor sentiment.