European shares rose on Friday as a drop in euro zone inflation in September increased hopes that the European Central Bank (ECB) will pause its interest rate hikes. However, despite the gains, the benchmark index still recorded its worst quarter in a year. The pan-European index increased by 0.4% on Friday, but finished the quarter 2.5% lower. Inflation in the euro zone reached its lowest level in two years in September, indicating that the ECB’s efforts to control runaway prices through interest rate hikes were successful but at the expense of economic growth.
The possibility of rate cuts resurfacing sooner than expected was highlighted by Davide Oneglia, director for European and Global Macro at TS Lombard. He stated that if disinflation and stagnation persist, discussions about rate cuts would return sooner than the market anticipates. As a result, Germany’s 10-year government bond yield, considered the benchmark for the euro area, dropped by 15 basis points to 2.818%. Real estate and technology shares were the best performers, with rate-sensitive real estate shares experiencing the most significant increase in more than ten weeks.
Oil and gas shares suffered the most during the session, falling 1.3% due to macroeconomic concerns and declining oil prices. Furthermore, German retail sales unexpectedly declined in August, impacted by high inflation in the euro zone’s largest economy. On a positive note, Commerzbank was the top gainer on the STOXX 600, surging 11.1% after announcing a revamped payout policy for investors. Adidas also saw a boost, climbing 6.2% following strong results from its US peer, Nike. Luxury stocks such as LVMH and Richemont also experienced gains.
In contrast, London’s commodity-heavy index managed only a modest 0.1% increase, but fared better over the quarter, outperforming its European counterparts with a 1.0% gain. Revised official data released on Friday revealed that Britain’s economic performance during the COVID-19 pandemic surpasses previous expectations, demonstrating faster growth compared to Germany or France.