Fed Rate Cut Expectations Propel European Equities Higher as Economic Data Surfaces

Positive momentum swept across European equity markets on Tuesday, with major indices posting solid gains as investors positioned themselves ahead of anticipated Federal Reserve interest rate cuts in December. The broader rally, mirrored from Wall Street strength, revealed growing appetite for risk assets despite mixed economic signals from the continent.

Market-Wide Performance Gains Ground

The pan-European Stoxx 600 index advanced 0.91%, reflecting broad-based strength across the region. National benchmarks followed suit with consistent performances: Germany’s DAX climbed 0.97%, France’s CAC 40 added 0.83%, the UK’s FTSE 100 rose 0.78%, and Switzerland’s SMI ended 0.93% higher. Most European exchanges participated in the rally, including Belgium, Czech Republic, Denmark, Finland, Greece, Ireland, Netherlands, Poland, Spain and Sweden, though Iceland and Norway showed only marginal appreciation. Turkey retreated into negative territory, while Portugal remained flat.

Corporate Winners and Losers

The retail sector captured headlines when Kingfisher, a leading home improvement retailer, surged over 6% following an upgraded profit forecast. The company reported Q3 sales of GBP 3.252 billion—up 1% year-over-year on a like-for-like basis at 0.9%—and now projects adjusted pre-tax income between GBP 540-570 million for the full year, significantly raising its earlier guidance range of GBP 480-540 million.

Insurance sector weakness emerged when Beazley plummeted more than 9% after cautioning on growth deceleration. The company trimmed its annual insurance written premiums guidance to flat-to-low single digit growth, down from previous expectations of low-to-mid single digits.

Additional gainers included Airtel Africa (+6.5%), Burberry Group, Barratt Redrow, Lloyds Banking Group, NatWest Group, Coca-Cola HBC, and numerous others posting 2-5% advances. Conversely, Intertek Group declined 5.71%, while Easyjet dropped 1.52% despite delivering better-than-expected full-year operating profit. BAE Systems, Compass Group, Auto Trader Group and BP also finished notably lower.

German equities benefited from broad appeal, with Heidelberg Materials jumping over 6%, Continental and Daimler Truck gaining 2-3.4%, while Merck, Commerzbank, Infineon and Siemens extended gains. In France, ArcelorMittal, Stellantis, Saint Gobain and Societe Generale posted 2-4.1% gains, with Michelin advancing nearly 2%.

Economic Reality Check: Germany’s Stagnation and French Sentiment Decline

Revised statistics from Destatis painted a sobering picture for Europe’s largest economy. German GDP remained flat quarter-on-quarter in Q3, following a 0.2% contraction in Q2. While gross fixed capital formation accelerated 0.3%, investment in machinery and equipment rose 1.1%, construction spending fell 0.5%. The problem: consumption remained stagnant, with private spending down 0.3% (the first decline since Q4 2023 as households cut back on restaurants and hospitality), while government expenditure climbed 0.8%. Most critically, foreign trade offered zero support, with exports declining 0.7% and imports flat.

French consumer confidence deteriorated in November, according to INSEE data. The consumer sentiment index slipped to 89 from 90 in October, continuing to languish below the 100 long-term average. Assessments of personal finances, both historical and forward-looking, remained essentially unchanged, with opinion balances dropping one point each to -21 and -12 respectively.

The divergence between equity market enthusiasm and deteriorating economic fundamentals underscores investor focus on monetary policy expectations rather than present economic conditions.