European shares rise as dovish BOJ helps risk-on sentiment; inflation data in focus

By Khushi Singh and Ankika Biswas

(Reuters) -European shares climbed on Tuesday as risk appetite got a boost after Japan’s central bank stuck to its ultra-loose monetary policy, while investors focused on the euro zone’s inflation print to gauge the timing of rate cuts next year.

The pan-European climbed 0.3% by 0927 GMT, with investors remaining optimistic about rate cuts next year following Federal Reserve Chair Jerome Powell’s dovish shift last week.

Travel and leisure rose 0.9%, leading sectoral gains, while automobiles and energy were the worst hit, down 0.4% each.

Meanwhile, the Bank of Japan maintained ultra-loose policy settings in a widely expected move, awaiting more evidence on whether wages and prices would rise enough to justify a shift away from massive monetary stimulus.

“Powell’s pivot towards more dovish policy is still playing out, and now that’s been reinforced by another dovish move by the Bank of Japan,” said Patrick Armstrong, chief investment officer at Plurimi Wealth.

Investors now await the euro zone’s final November inflation print later in the day, while keeping an eye out for the U.S. personal consumption expenditure data later this week for clues on the global monetary policy outlook.

Driven by rate cut optimism, the STOXX 600 is on track for its second monthly gain in December and a double-digit advance of 12.2% for the year.

“Santa came early this year, and the trend will continue through year-end. The Fed’s done with hikes and the next move is cuts, but the question is how many cuts there will be in 2024 at this point.”

The STOXX 600, however, has lagged its U.S. peer ‘s 23.5% yearly advance, with the latter also benefiting from investors flocking to artificial intelligence stocks.

Even while actively snubbing interest rate cut bets, policymakers have adopted a more positive outlook for inflation.

ECB member Francois Villeroy de Galhau said lower interest rates are seen sometime in 2024, reaffirming that inflation should be back down to 2% by 2025 at the latest, while the Wall Street Journal reported Federal Reserve’s San Francisco President Mary Daly noted that rate cuts are likely appropriate next year on improved inflation.

Among individual stocks, UBS shares added 2.5% after activist investor Cevian Capital reported a 1.3% stake in the bank.

Covestro gained 2.3% following a report that the Abu Dhabi National Oil Co was preparing to raise its offer for the German chemicals maker.

Stora Enso (OTC:) rose 3.2%, with traders flagging DNB Markets upgrading the Finnish forestry firm’s stock to “buy”.

Casino dropped 8.9% after the French retailer entered into exclusive talks to sell all of its big stores to rivals Les Mousquetaires and Auchan Retail.