European Stock Gains Amid Rate Cut Speculation

European stock markets rebounded, closing higher on speculation of potential interest rate cuts by the Federal Reserve and European Central Bank. The pan-European STOXX 600 rose by 0.3%, driven by expectations of monetary easing. However, mixed corporate results limited broader gains, with notable performances in sectors like aerospace and defence.

European stock markets recovered from initial losses, closing higher on Wednesday as investors speculated that the Federal Reserve might reduce interest rates later this month following a steady U.S. inflation report. The STOXX 600 index improved throughout the day, finishing with a 0.3% gain after U.S. data indicated the Consumer Price Index (CPI) rose as anticipated in November.

The likelihood of a 25-basis-point cut by the Fed next week increased to 95%, up from around 85% pre-data, according to CME's FedWatch tool. Investors' attention also turned to the European Central Bank's decision on Thursday, with LSEG probabilities data showing an 85% possibility for a similar 25 bps cut.

Despite mixed corporate performances curbing further market advances, the aerospace and defence sector led gains with a 1.4% rise. In contrast, disappointing corporate updates and geopolitical issues like the Ukraine conflict posed challenges, affecting sectors like retail. Noteworthy corporate moves included Zalando's acquisition of About You, propelling the latter's shares by 66.2%.