European shares close on a buoyant note after ECB policy announcement

The European Central Bank ECB raised interest rates
  • Jonathan Rowe
  • 04.09.2023

European stocks closed on a buoyant note on Thursday after the European Central Bank (ECB), which raised interest rates by 25 points, signalled that there will be a pause in rate hikes in September.

In addition, the Federal Reserve, which raised interest rates by 25 points on Wednesday as expected, downplayed the likelihood of a U.S. recession this year.

Europe's Stoxx 600 index rose 1.35%. Germany's DAX index rose 1.7%, France's CAC 40 was up 2.05% and Britain's FTSE 100 was up 0.21%. Switzerland's SMI index rose 1.7%.

Among other European markets, Austria, Belgium, Czech Republic, Denmark, Netherlands, Norway, Poland, Russia, Spain, Sweden, and Turkey closed higher.

Portugal, Finland, Iceland ended weak, while Ireland and Greece were unchanged.

On Thursday, the ECB raised interest rates for a ninth consecutive meeting as expected, citing that eurozone inflation has remained elevated for too long, while the bank's head Christine Lagarde said policymakers are keeping an open mind on future rate decisions, suggesting a possible pause on the horizon.

The Governing Council raised the refinancing rate (refi) by 25 basis points to 4.25%. The deposit rate was raised to 3.75%, the highest level in 22 years, while the lending rate was raised to 4.5%.

“Inflation continues to fall but is expected to remain too high for a long time to come,” the ECB said in a statement. Overall, core inflation remains high, the bank added.

“We are consciously data dependent, we have a free view on decisions in September and in subsequent meetings,” Lagarde said at a press conference after the decision.

In the British market, Centrica shares rose 7.5 percent after the company posted strong operational and financial performance in the first half of the year.
Relx shares rose 4.7%, while Informa, Airtel Africa, Burberry Group, Frasers Group, Smith (DS), Flutter Entertainment, Melrose Industries, Rolls-Royce Holdings, RS Group, WPP, IHG, Smurfit Kappa Group, Whitbread and CRH were up 2-4.1%.

Shares of St. James's Place fell 16%. Barclays Group fell 5.2% after the bank said it expects to earn less interest in the U.K. due to lingering inflation and high interest rates.

Endeavour Mining fell 3.7% and BT Group fell 2.1%. Vodafone Group, Segro, Unite Group, Persimmon, Fresnillo, Shell, Hargreaves Lansdown and M&G also fell significantly.

In the German market, shares of Infineon, HeidelbergCement, Sartorius, Daimler Truck Holding, SAP, Puma, and Siemens rose between 3 and 5.6%. Mercedes-Benz rose nearly 4% after raising its full-year forecast.

Deutsche Post, Siemens Healthineers, Symrise, Deutsche Boerse, BMW, Adidas and Zalando rose 2 to 3%.

Aixtron shares rose nearly 14% after the semiconductor equipment company raised its 2023 revenue and order forecast due to strong demand.

Deutsche Bank's quotations fell 3.3%. Volkswagen lost about 2% after lowering its 2023 delivery forecast. Quotes of RWE and Covestro also fell noticeably.

In Paris, shares of STMicroelectronics rose nearly 9%. Shares of Stellantis, Worldline, Alstom, Saint-Gobain, Hermes International, Capgemini, LVMH, Dassault Systèmes, Carrefour, and Michelin rose between 3 and 5.4%.

BNP Paribas rose 3% after announcing the start of share buybacks next month. Safran climbed nearly 2% after raising its full-year forecast.

Teleperformance shares fell 17%. Airbus Group and Unibail Rodamco lost 1.6% and 1.1% respectively.

UK car production rose for the fifth consecutive month in June on strong demand from the export market and manufacturers better managing global supply chain issues, data from the Society of Motor Manufacturers and Traders (SMMT) showed on Thursday. Car production rose 16.2% year-on-year in June.

British retailers expect the sales slump to gather pace in August, a survey by the Confederation of British Industry showed.

A net 25% of retailers said sales fell in July, the biggest drop since April 2022. 32% said sales would fall again next month.

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