Europe midday: Shares hold gains on rate cut hopes

(Sharecast News) - European shares were higher on Friday as investors digested commentary from central banks on the outlook for interest rates next year. The pan-European Stoxx 600 was up 0.30% at 477.02 in early deals with major bourses higher.

On Wednesday saw the US Federal Reserve held rates but sparked a rally when it said it was considering at least three cuts next year.

The Bank of England and the European Central Bank also kept rates unchanged a day later, but the BoE moved swiftly to dampen hopes of a reduction saying monetary policy is "likely to need to be restrictive for an extended period of time".

ECB eurozone growth and inflation forecasts were also revised down.

Meanwhile, on Friday a flash reading of the eurozone manufacturing purchasing managers remained at a six-month high in December, coming in at 44.2 in December, short of expectations for a reading of 44.6 and flat month-on-month.

Output fell for a ninth month, with the rate of decline re-accelerating, and backlogs of work fell sharply. Additionally, payrolls were cut for a seventh straight month, and the rate of job losses continued to run at one of the highest seen since 2012, excluding the Covid-19 pandemic.

The services PMI, on the other hand, dropped to 48.1 in December, down from 48.7 in November and hitting a two-month low, while the composite PMI fell to 47.0 in December versus expectations for a print of 48.0 and November's 47.6 reading.

"Investors are chewing through an enormous amount of data from central banks in recent days, with the pause button for interest rates still the go-to. The pressure could be mounting though, as markets are still largely behaving as though these pauses are pivots, but it's likely that cuts are further away than investors are expecting," said Hargreaves Lansdown analyst Sophie Lund-Yates.

"The huge resilience of economies so far has been a pleasant surprise, but that doesn't mean challenges aren't coming down the tracks, and recessions, and earnings shocks, can't be ruled out just yet."

In other economic news, China's November industrial output expanded at the its fastest pace since February 2022, although retail sales figures were weaker than expected as the world's second-largest economy continued to stumble towards recovery.

Industrial output grew by 6.6% in November on an annual basis, beating expectations for 5.6%. Retail sales were up 10.1% last month, although analysts had expected a 12.5% spike following a low base in 2022 when the country was in the grip of of stringent zero-Covid curbs in the last quarter of the year.

Fixed asset investment in urban areas cumulatively grew 2.9% in the first 11 months of the year, compared to expectations for 3% growth.

In equity news, shares in IT firm Atos surged after major shareholder Onepoint raised its stake in the company to 11%.4 from 9.9% and said it plans to keep buying stock and seek board representation.

German fragrance and flavour maker Symrise fell after cutting its fiscal year 2023 outlook, citing lower raw material prices and exchange rates.

Reporting by Frank Prenesti for Sharecast.com