Fed rate increase bets boost European shares

European shares on Friday notched their best weekly performance in nearly eight months, largely driven by bets of smaller rate hikes by the US Federal Reserve and easing COVID-19 curbs in China.

The STOXX 600 index ended the session up 0.1 percent at a 11-week high of 432.26, posting a weekly gain of 3.66 percent, with financial services, mining and retail stocks leading the gains.

The weekly gains mostly came after data on Thursday showed US consumer prices cooled more than expected in October, leading to expectations that the Fed could temper its size of future interest rate hikes.

“The market’s just waiting for signals that the initial interpretation to the US CPI [consumer price index] numbers yesterday is the correct one,” TS Lombard research head Andrea Cicione said.

In the UK, the export-oriented FTSE 100 on Friday fell 0.78 percent to 7,318.04, hurt by a stronger pound, after data showed a smaller-than-expected contraction in the British economy, although mid-cap stocks marked their best week in almost two years. The index was down 0.23 percent from a week earlier.

China-exposed luxury giants Hermes International SCA, Kering SA and LVMH Moet Hennessy Louis Vuitton SE jumped between 2.4 percent and 2.8 percent. Richemont SA, the maker of Cartier necklaces and IWC Schaffhausen timepieces, soared 10.50 percent on better-than-expected sales and margins.

The European basic resources jumped 2.6 percent as prices of base metals rose.

“Markets are welcoming looser COVID rules in China, but infection numbers are elevated and vaccination rates are low, which means that the path to complete removal of restrictions still looks long,” strategists at ING wrote in a note.

An upbeat earnings season and hopes of smaller Fed rate hikes have helped the STOXX 600 stretch gains to a fourth straight week, as investors set aside concerns about the European economy slipping into recession.

However, analysts said this profit growth could dry up within months, as high inflation and recession rattle the economy.

Germany’s inflation continued to rise at an alarming pace, as data showed consumer prices, harmonized to compare with other European countries, last month was 11.6 percent higher year-on-year.

Among stocks, Europe’s largest mobile phone tower operator, Spain’s Cellnex Telecom SA, gained 1.6 percent after posting a 45 percent rise in nine-month core earnings.

Delivery Hero SE jumped 8.8 percent as analysts raised their price targets on the German food delivery company’s shares a day after it forecast positive adjusted core profit margin for next year and reassured investors of reaching profitability.