European Shares Surge as Eurozone Inflation Drops: Will ECB Halt Interest Rate Hikes?
European shares surge as eurozone inflation drops, raising hopes of ECB halting interest rate hikes. Despite a poor performance, softer inflation data leads to gains in real estate and technology shares.
European shares saw a surge following a decrease in eurozone inflation in September, leading to hopes that the European Central Bank (ECB) would halt its interest rate hikes. However, the benchmark STOXX 600 index concluded the quarter with its poorest performance in a year, ending 2.5% lower despite a 0.4% rise. The eurozone's inflation rate reached a two-year low, indicating that the ECB's efforts to control prices through consistent rate hikes were effective. As a result, Germany's 10-year government bond yield declined and rate-sensitive real estate shares witnessed significant gains. Additionally, softer-than-expected inflation data led to an increase in technology shares. However, the tech sector has struggled this quarter, experiencing a drop of over 10% due to concerns about persistently high interest rates.
Amidst these developments, Commerzbank emerged as the top gainer on the STOXX 600 index after announcing a new payout policy for investors, reflecting a positive outlook for the company in the current economic climate. Preliminary inflation figures from Germany showed a greater slowdown than anticipated, with harmonized data indicating a 4.3% increase in consumer prices since September 2022—the lowest level since the full-scale invasion of Ukraine. This notable decrease in inflation rates in Germany, the eurozone's largest economy, adds to the optimism surrounding the European Central Bank's monetary policy.
The impact of the lower-than-expected inflation data was felt in the performance of tech stocks and real estate shares. Technology shares experienced an increase, as they have been sensitive to inflation rates and have underperformed this quarter due to concerns about persistently high interest rates. Conversely, rate-sensitive real estate shares saw a significant rise. This sector typically benefits from lower interest rates as borrowing costs for property purchases decrease, stimulating demand.
In Asian-Pacific markets, there was a broad decline overnight, following some gains on Wednesday. This drop can be attributed to the increase in U.S. Treasury yields and oil prices, which dampened investor sentiment on Wall Street. The benchmark 10-year U.S. Treasury yield reached its highest point since 2007, while U.S. crude futures rose more than 3% to settle at $93.68 per barrel.
While the European market experienced a rise in shares due to the drop in eurozone inflation, the underperformance of the STOXX 600 index this quarter highlights the ongoing challenges in the market.
European Shares Surge as Eurozone Inflation Drops: Will ECB Halt Interest Rate Hikes?
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