Europe close: Stocks rally as weak data boosts rate-cut hopes

(Sharecast News) - European stock markets rallied on Monday afternoon to finish with moderate gains as dismal economic data increased hopes that the European Central Bank will continue easing monetary policy at its next meeting. The Stoxx 600 index closed up 0.4% at 516.11, with most major markets across the continent registering gains, with the exception of Milan's FTSE MIB as UniCredit dropped.

The focus of Monday's session was the S&P Global/HCOB purchasing managers' indices (PMIs) for September, which revealed the first overall decline in business activity across the eurozone in seven months. The eurozone composite PMI fell to 48.9 in September, down from 51.0 in August, well below the consensus estimate of 50.6.

In particular, the manufacturing sector of industrial powerhouse Germany continued to weaken, with the national manufacturing PMI (also out on Monday) sinking to a 12-month low of 40.3 from 42.4 the month before.

Kathleen Brooks, research director at XTB, said the September PMI data "could add some urgency to ECB rate cuts for the rest of this year", following a relatively cautious approach to monetary easing seen so far. The ECB's final two monetary policy meetings of the year will be held on 17 October and 12 December.

Brooks pointed out that the German two-year bund yield fell faster than the 10-year yields - falling 7 basis points compared with 4.6 basis points, respectively - as investors showed concerns about economic outlook.

"It is also a sign that the market believes that the ECB will have to cut interest rates at a faster pace than initially thought. On Friday there was a 25% chance of an October rate cut from the ECB, this has risen to 40% today, on the back of the weak PMI data," she said.

In other news, the president of the Chicago Federal Reserve, Austan Goolsbee, said on Monday that he sees "a lot" of interest-rate cuts coming over the upcoming year. "Over the next 12 months, we have a long way to come down to get the interest rate to something like neutral," Goolsbee said.

Market movers

Commerzbank shares dropped 6% after the German government said it would keep its stake in the bank for now, in a move that dented hopes of a merger with Italy's UniCredit, which fell 3%.

Commerzbank shares have rallied roughly 24% since 11 September, when UniCredit announced it had amassed a 9% stake in the German bank and expressed an interest in a merger. However, the Finance Agency's announcement now means that UniCredit was now unlikely to make a takeover offer anytime soon.

BNP Paribas fell 4% after announcing a deal to buy HSBC's private banking unit in Germany, which it expected to be finalised in the second quarter of 2025. HSBC gained 2%.

Australian property listing firm REA Group sweetened its offer for UK rival Rightmove with a £6.1bn offer, sending Rightmove shares higher.

AstraZeneca fell as the pharma giant said its experimental precision drug developed with Daiichi Sankyo did not significantly improve overall survival for patients with a type of breast cancer in a late-stage trial.