European shares log best day in two months; Swedish real estate stocks jump

Optimism around slowing inflation in the euro zone, after latest data on Thursday, have further boosted hopes of an easing in the European Central Bank's monetary policy tightening. However, ECB board member Fabio Panetta expects further rate hikes, although, noting that the end of the cycle is in sight, while governing council member Gabriel Makhlouf highlighted that the fall in inflation is "very welcome" but not definitive with underlying pressures remaining quite strong.

European shares clocked their best one-day gain on Friday as investors took comfort from easing euro zone inflation, the passing of the U.S. debt bill, and growing evidence supporting the case for the Federal Reserve to pause interest rate hikes this month. The pan-European STOXX 600 index closed 1.5% higher, with miners and real estate at the forefront of the buying spree.

Data showed U.S. job growth accelerated in May, but a jump in the unemployment rate suggested that the labour market conditions were easing. "The one silver lining in the report could be that the unemployment rate jumped ... which could be a useful marketing line to show that the "labour market is weakening," said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

Further, the U.S. Senate on Thursday passed bipartisan legislation backed by President Joe Biden that lifts the government's $31.4 trillion debt ceiling, averting what would have been a first-ever default. Optimism around slowing inflation in the euro zone, after latest data on Thursday, have further boosted hopes of an easing in the European Central Bank's monetary policy tightening.

However, ECB board member Fabio Panetta expects further rate hikes, although, noting that the end of the cycle is in sight, while governing council member Gabriel Makhlouf highlighted that the fall in inflation is "very welcome" but not definitive with underlying pressures remaining quite strong. "It is likely that ECB will carry on tightening policy and that they don't want to sound dovish before the very close to the end of the tightening cycle, but now it looks like the end is really not that far away," said said Andrea Cicione, head of research at TS Lombard.

Meanwhile, shares of Swedish real estate firm SBB skyrocketed 53.3% to the top of the STOXX 600 as the debt-laden Swedish real estate company's founder and CEO Ilija Batljan stepped down and will be replaced by industry veteran Leiv Synnes as the board seeks to divest assets or find a buyer for the group. Other Swedish property firms such as Fabege AB, Castellum AB and Balder gained in the range of 5.9% to 8.3%, with the real-estate sector index jumping 4%.

The highly leveraged sector has come under pressure in recent months as soaring rates and falling property values squeeze real estate firms in Europe. German sportswear makers Puma SE and Adidas AG rose 6.4% and 5.8%, respectively, after U.S. retailer Lululemon Athletica Inc raised its annual sales and profit forecasts.

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