Europe close: Stocks rise strongly as investors digest central bank meetings

(Sharecast News) - European stocks rose strongly on Thursday after Switzerland cut interest rates for the second time this year, and expectations build that the Bank of England will follow suit at its next meeting. The Stoxx 600 index gained 0.88% to 518.66, its highest in a week, with solid gains across the continent. Notably, the Cac 40, DAX and FTSE MIB all rose more than 1%.

The Swiss National Bank cut its key rate to 1.25% from 1.5%, as was mostly expected by economists, as the central bank responds to lower inflation and a strengthening franc. This was the second cut from policymakers so far in 2024, and follows monetary easing in Sweden, Czech Republic, Serbia and Hungary.

Norway's central bank kept interest rates unchanged but warned that inflation will likely remain elevated for some time, with monetary policy likely to remain stable until at least the end of the year. Norges Bank's Monetary Policy and Financial Stability Committee kept its main policy rate at 4.5% - a level which it has maintained since January.

Meanwhile in the UK, the Bank of England left interest rates on hold as expected, despite falling inflation. The Monetary Policy Committee voted by a majority of seven to two to keep the cost of borrowing at a 16-year high of 5.25%, but called the decision "finely balanced".

However, data released on Wednesday showed that UK inflation fell back to the BoE's 2% target for the first time in three years, raising hopes that the central bank will move to cut rates at its next meeting in August.

"With the decrease in inflation, markets have advanced their expectations for a rate cut," said analyst Patrick Munnelly of Tickmill Group. "LSEG's IRPR predicts a 40% probability of a cut in August and a 90% likelihood of a move in September. The chances for a September cut have increased from around 70% earlier this week."

In Germany, producer-price deflation eased to -2.2% in May, its lowest level in 11 months and up from -3.3% in April, missing the consensus forecast of -2.0%. Producer prices have been falling year-on-year since July 2023, though last month's decline was the lowest rate in the current cycle.

Market movers

Ocado shares slumped by 14% as the online grocer and warehouse tech group said the planned go-live of Canadian grocery retailer Sobeys' customer fulfilment centre in Vancouver had been paused and that the two have agreed to end terms related to mutual exclusivity.

German drug developer Evotec rallied surged 14% after a report it was speaking to advisers after a decline in its share price raised concerns about its vulnerability to a takeover.

Tate & Lyle fell 9% as the company said it was buying US-based CP Kelco for $1.8bn. T&L shares were also lower as they traded without entitlement to a dividend.

British supermarket chain Sainsbury agreed to sell its core banking operations to NatWest, causing shares in both the supermarket group and bank to rise.

Danone shares fell as the company left annual sales growth targets of between 3% and 5% over the next four years unchanged.