European stocks rise on hopes for end to US rate increases

European stocks rose at the open on Friday as investors drew optimism from US economic data that pointed towards an end to the Federal Reserve’s campaign to curb inflation with interest rate increases.

Europe’s region-wide Stoxx 600 rose 0.5 per cent in the first hour of trade, assisted by strong corporate earnings from Switzerland’s Richemont, which boosted luxury goods makers. France’s CAC 40 added 0.6 per cent.

Contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 both rose 0.2 per cent ahead of the New York open.

The advances followed a string of economic releases on Thursday that provided further signs the Fed had made progress in reducing inflation and might be nearing the end of its monetary tightening cycle.

“Data has been one of the main drivers of markets and that state of play looks set to continue”, said Benjamin Schroeder, senior rates strategist at ING in Amsterdam.

Wall Street trading was mixed overnight, as concerns over the health of the US regional banking sector held further gains in check.

The tech-heavy Nasdaq Composite index gained 0.2 per cent, but the S&P 500 fell 0.2 per cent after regional lender PacWest announced it lost almost a tenth of deposits in the first week of May.

US initial jobless claims hit their highest level since October 2021, signalling a softening in the labour market, which could reduce pressure on wage growth. A separate report showed producer price inflation for April was slightly lower than expected.

The yield on interest rate-sensitive two-year Treasury notes was flat at 3.89 per cent, while the yield on 10-year notes was also flat, at 3.39 per cent. Bond yields fall when prices rise.

London’s FTSE 100 gained 0.4 per cent on Friday as official data showed the economy expanding 0.1 per cent between the last quarter of 2022 and the first three months of this year, unchanged from the previous quarter and in line with analyst expectations.

The pound strengthened 0.2 per cent against the dollar, trading at $1.253, recouping some losses from the previous day when the Bank of England raised its benchmark interest rate to 4.5 per cent, its highest level since 2008. The dollar lost 0.1 per cent against a basket of six other currencies on Friday.

Equities declined in Asia, with Hong Kong’s Hang Seng index falling 0.6 per cent and China’s CSI 300 shedding 1.3 per cent. Japan’s Topix was the exception, adding 0.6 per cent and buoyed by positive earnings forecasts from some of the country’s biggest companies in recent days.