Europe close: Stocks surge as rate-cut hopes boost risk appetite

(Sharecast News) - European stock markets rose strongly on Thursday in the aftermath of the Federal Reserve's biggest rate cut in 16 years, as other central banks indicated that more monetary easing was just around the corner. The pan-European benchmark finished 1.4% higher at 521.60, with all major indices across the continent showing solid gains. The Cac 40 in Paris, in particular, outperformed with a surge of 2.2%.

The Stoxx 600 is now only a few points away from the record close of 525.05 reached on 30 August.

The Fed on Wednesday evening lowered the Federal Funds Rate by 50 basis points to 4.75-5.0%, marking the first time monetary policy has been eased since March 2020 and the first time rates have been cut by half a percentage point since the financial crisis of 2008.

"Investors seem very pleased with the Fed's 50bps cut and its optimistic assessment of the US economy. Stock markets across the globe have made headway, confident that the US central bank has their back," said Chris Beauchamp, chief market analyst at IG.

In other news, the Bank of England left the cost of borrowing unchanged at 5% on Thursday, as widely expected, but hinted at further cuts to come. The Monetary Policy Committee, which cut interest rates for the first time in four years in August by 25 basis points, opted to leave them unchanged by a majority of 8 to 1. External member Swati Dhingra voted for another 25bps cut, to 4.75%.

Andrew Bailey, BoE governor, said the economy was moving "broadly as we expected". He added: "If that continues, we should be able to reduce rates gradually over time. But it's vital that inflation stays low, so we need to be careful not to cut too fast or by too much."

Meanwhile, Norway's central bank kept interest rates unchanged at a 16-year high of 4.5% on Thursday but said it intends to launch a rate-cutting programme during the first quarter of 2025.

However, Capital Economics' Andrew Kenningham said: "We think policymakers will begin cutting rates a little sooner and have pencilled in a first cut in December. After all, the unemployment rate has crept up and the share of firms reporting labour shortages has fallen. And measured on a comparable basis, core inflation is lower in Norway than in the euro-zone or UK."

Market movers

Campari maker Davide Campari-Milano was up 10%, reversing Wednesday's sell-off following the abrupt departure of its chief executive for personal reasons after just six months in the role. Reports on Thursday suggested that the Milan-listed company's controlling shareholder Lagfin was planning to buy up to €100m of shares.

Allegro was leading the fallers on the Stoxx 600 with a decline of 8% in Warsaw as Poland's biggest e-commerce platform forecast slowing earnings growth in the third quarter.

Rolls-Royce was the standout gainer in London, jumping 5% after it was selected to build mini nuclear power plants for the Czech government.

Defensive stocks were falling as a result of an increase in risk appetite, with utilities and telecoms names bearing the brunt, including SSE, RWE, National Grid, Vodafone, Cellnex Telecom and E.ON.