European Shares Gain Amid Anticipated ECB Rate Decision

European shares rose on Monday, spurred by gains in Asian markets and anticipation of a European Central Bank (ECB) interest rate decision. The STOXX 600 index increased by 0.6%, with tech and finance sectors leading gains. However, the market remains cautious as May's higher inflation reading complicates future rate cuts.

Reuters | Updated: 03-06-2024 14:26 IST | Created: 03-06-2024 14:26 IST
European Shares Gain Amid Anticipated ECB Rate Decision
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European shares rose on Monday, tracking gains in Asian equities, while investors braced for a key interest rate decision from the European Central Bank (ECB) later this week.

The pan-European STOXX 600 was up 0.6% by 0832 GMT, extending gains for the third straight session. The sentiment was upbeat as China's factory activity grew at the fastest pace in about two years in May, while a softer U.S. inflation print on Friday continued to spur hopes of interest rate cuts this year by the Federal Reserve.

All eyes are now on the ECB's interest rate decision on Thursday, where the central bank is expected to cut borrowing costs by 25 basis points (bps) from its record-high levels, according to a Reuters poll. "The market expects a 25bp rate cut on Thursday, however, it's what comes next that matters more for financial markets," Kathleen Brooks, research director at XTB, said in a note.

"We do not expect (ECB President) Christine Lagarde to confirm further rate cuts, however, she may say that the bar is high for a rate cut in July, and instead suggest that a September cut could be possible, but only if inflation starts to retreat in the coming months." Market participants anticipate rate cuts owing to the encouraging signs of easing inflation in the region. However, the May inflation reading ticking higher has cast doubts on the number of rate cuts this year.

European lenders were among top boosts, hovering near record levels and up nearly 1%, with gains in the sector led by a 1.2% advance in Avanza Bank on a Barclays upgrade. Technology stocks also aided overall market gains, rising 1.1%.

On the data front, HCOB's final euro zone manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, showed new orders declined at their slowest pace in two years, leading to improved business confidence. Among other stocks, British drugmaker GSK tumbled 9.2% after a Delaware judge allowed more than 70,000 lawsuits over discontinued heartburn drug Zantac to go forward. The stock led the healthcare sector to underperform, down 0.7%.

Atos shed 18.1%, reversing gains made at market open as the distressed IT consulting firm gave itself until Wednesday to choose between two revised restructuring proposals that would dilute its current shareholders to almost nothing and massively cut its debt burden.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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