(Bloomberg) -- European stocks kicked off December with gains, extending a rally that added $1.2 trillion to the Stoxx 600’s market value last month, fueled by miners, as investors assessed comments by Federal Reserve Chair Jerome Powell on the timing of interest rate cuts.
The benchmark index rose 1% to close at a four-month high, with mining stocks leading gains following an unexpected pickup in China’s Caixin manufacturing activity gauge. The sector was also lifted by advances from Anglo American PLC and Antofagasta PLC after upgrades from UBS. Germany’s DAX Index gained 1.1% to end the week just shy of a record.
LVMH was among the decliners after Morgan Stanley cut its rating on the luxury goods maker, citing risks from deteriorating demand. Swiss Re AG also fell as the reinsurance firm’s new reserving allowance is expected to have a negative impact on profit.
European stocks marked their strongest advance since January last month on optimism around easing inflation and a peak in interest rates. A broad rally on Wall Street also led the S&P 500 to one of its best November gains in a century.
Remarks from Powell boosted risk assets, signaling that the Federal Reserve could leave interest rates steady this month, even as he retained the option for further hikes. A plethora of Fed officials have this week indicated they are happy to keep rates on hold for now while remaining cautious on the timing of policy easing. Markets are pricing in four quarter-point cuts for 2024.
There was some positive news on European business activity, with manufacturing PMIs a touch stronger than advance readings, both in the euro area and Britain. Eyes are also on France, which faces a ratings review later on Friday from S&P Global.
“The combination of lower-than-expected inflation prints and better activity data has fueled a valuation-driven equity rally,” strategists at Goldman Sachs including Lilia Peytavin wrote in a note.
Richard Flax, chief investment officer at European digital wealth manager Moneyfarm, is cautious about the rally extending into the year-end.
“Going into 2024, we haven’t increased our equity positioning from where we are as we expect an economic slowdown to begin to appear in a way that it didn’t in the US this year,” Flax said. “The key question is how growth begins to evolve. If we begin to see slowing macro growth translate into earnings downgrades, that would call the equity rally into question.”
For more on equity markets:
- Data Not Good Enough to Revive the China Trade Yet: Taking Stock
- ASIA M&A WEEK AHEAD: Premiata, Hahn & Co., Otsuka, Silvercorp
- European States Facing Losses on Bank Stake Sales: ECM Watch
- US Stock Futures Fall; Marvell Technology, Tesla, Alibaba Fall
- Dr. Martens Gets a Kicking Over US Struggle: The London Rush
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--With assistance from Sagarika Jaisinghani.
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