Rate Cut Hopes Lift European Markets 1%, Manufacturing Downturn Eases In May

Bridgette Randall
03 Jun, 2024
Frankfurt

Market indexes in Europe soared as much as 1% in Monday's trading on the expectation that the European Central Bank is ready to cut its rate for the first time since 2016. 

Benchmark indexes in Frankfurt, Paris, and London closed down in the previous week amid rate jitters and high-valuation worries. as investors reassessed the economic outlook amid high energy prices and weak consumer sentiment. 

The European Central Bank is expected to cut its policy rate by 25 basis points, and investors are looking for clues about the possible additional rate cuts. 

In Monday's trading, market sentiment was bolstered after the eurozone's manufacturing activity outlook was revised slightly lower. 

 

Manufacturing Downturn Eases In Eurozone

On the economic front this week, investors are looking forward to the release of a final update on the first quarter GDP growth, retail sales, producer price inflation, and employment estimates in the eurozone. 

Germany and France are also set to release international trade updates.

The eurozone manufacturing purchasing managers' index was revised to a 14-month high to 47.3 in May from 45.6 in April, S&P Global and Hamburg Commercial Bank (HCOB) said in a joint report. 

Two weeks ago, in the preliminary estimate, the index was valued at 47.4. 

France's manufacturing index was revised one point higher to 46.4, but the index remains deep in contraction territory. 

The index value below 50 indicates contraction in growth, and the index value above 50 shows growth. 

“This could be the turning point for the manufacturing sector. 

The industry is on the verge of halting the production decline that has persisted since April 2023," said Cyrus de la Rubia, HCOB's chief economist.

France and Germany saw manufacturing contractions ease, but Spain and the Netherlands experienced an acceleration in growth in May. 

 

Europe Indexes and Yields

The DAX index increased by 0.8% to 18,650.40; the CAC-40 index rose by 0.4% to 8,024,37; and the FTSE 100 index advanced by 0.3% to 8,297.98. 

At the end of last week, the DAX index declined 1.3% and advanced 3.2% in May. and the CAC 40 index fell 1.6% in the week and declined 0.1% in May. 

The FTSE 100 index declined 0.6% in the week and rose 1.6% in May. 

The yield on 10-year German bonds edged lower to 2.62%; French bonds inched lower to 3.10%; the UK gilts edged lower to 4.29%; and Italian bonds inched higher to 3.91%.

The euro edged higher to $1.082; the British pound inched higher to $1.272; and the U.S. dollar gained to 90.14 Swiss cents. 

Brent crude decreased $0.24 to $80.86 a barrel, and the Dutch TTF natural gas rose by €3.54 to €38.74 per MWh.

 

Europe Stock Movers

L. M. Ericsson increased 2.7% to SEK 66.12 after the company said its four-year compliance period for the U.S. anti-corruption agreement ended on June 2. 

Cerillion PLC jumped 3.2% to 1,588.0 pence after the customer billion system provider for the telecom industry signed an agreement with Virgin Media Ireland. 

Sirius Real Estate jumped 1.6% to 98.90 pence after the commercial and industrial real estate developer reported higher fund flows in the year ended in March. 

GSK plc dropped 9.6% to 1,600.81 pence after a state court in Delaware found enough reasons to link its Zantac heartburn drug to cancer, permitting as many as 70,000 lawsuits to go forward. 

China-linked luxury stocks advanced following the news that China's manufacturing activities expanded for the seventh month in a row in May. 

LVMH, L'Oreal, Kering, and Richemont jumped between 0.2% and 0.6%.