European stocks rally on unexpected easing of Eurozone inflation

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European stocks rally on unexpected easing of Eurozone inflation
Credit: © Reuters.

European stocks experienced substantial gains today, following an unexpected easing in Eurozone inflation. The Stoxx 600 index rose by 0.7% as the single-currency consumer price index (CPI) saw a year-on-year increase of only 2.9% in October. This marks a two-year low, down from September's 4.3%, primarily due to energy price deflation and reduced food price inflation.

Analysts from Oxford Economics and Pantheon Macroeconomics have suggested that this trend could lead to earlier-than-expected rate cuts by the European Central Bank (ECB), potentially in Q2 2024. This anticipation comes despite a surprising 0.8% drop in Germany's retail sales for September.

Italian banks, including Bper Banca, Banca Monte Paschi Siena, and Banco Bpm, significantly contributed to the FTSE MIB 's gain of 1.4%, outperforming other indices. Despite a considerable 13% rise in Q3 net profits, shares of Spanish bank BBVA (BME: BBVA ) fell.

Belgian drinks company AB InBev reported a 5% increase in Q3 revenue, leading to an uptick in share prices. However, oil giants BP (NYSE: BP ) and Shell (LON: SHEL ) saw their shares decrease after missing Q3 profit forecasts.

In contrast, Deutsche Bank (ETR: DBKGn ) and Commerzbank (ETR: CBKG ) shares performed well today. CaixaBank and Bankinter initially experienced a drop but moved into positive territory by midday.

AB InBev announced a Q3 revenue increase of 5% to $15.1bn and a 4.1% EBITDA rise, maintaining its medium-term EBITDA growth guidance of 4-8%. Meanwhile, BP recorded an underlying replacement cost profit of $3.3bn for Q3, missing forecasts, similar to Shell's performance.

While the recent easing of inflation has provided a boost to European stocks, analysts warn of potential risks related to high services inflation and wage dynamics. Pantheon Macroeconomics predicts a faster core inflation decline than the ECB's projection by March 2024, potentially triggering the first rate cut.

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