European Shares Lifted by Surging Commodity Stocks

European shares edged higher on Monday, but gains were limited by uncertainties surrounding interest rate prospects. The pan-European STOXX 600 index rose 0.1%, remaining just below the record highs set last week.

Commodity-linked stocks drove the rise, with European miners and oil & gas indexes climbing about 0.6% each, boosted by a surge in copper prices to record highs due to China’s property support measures and robust industrial data.

Gold prices also reached new peaks, and crude prices inched higher amid political uncertainties in major oil-producing nations such as Iran and Saudi Arabia.

However, the positive impact of rising commodity prices on European equities was counterbalanced by an increase in euro zone sovereign bond yields. This followed warnings from European Central Bank (ECB) and Federal Reserve officials about the uncertain path of monetary easing.
“The ECB is likely to begin its easing cycle before the Fed in June, with further rate cuts to follow. We anticipate a total of 100bp cuts in 2024, though risks could limit this to 75bp,” stated Vincent Chaigneau, head of research at Generali Investments.

Market expectations currently price in around 65 basis points (bps) of ECB rate cuts in 2024, compared to 67 bps on Friday, according to LSEG’s rate probabilities app.

ECB board member Isabel Schnabel indicated in a recent Nikkei interview that the central bank might reduce interest rates in June but should proceed cautiously with further cuts due to economic uncertainty.

Italian stocks fell 1.2%, with banks like Banca Popolare di Sondrio and Banco BPM among the leading decliners.

TotalEnergies rose 1.2% after its CEO Patrick Pouyanne announced the company’s first supply deal with Dangote Refinery in Nigeria, following a meeting with Aliko Dangote, Africa’s richest man.

Volkswagen dropped 1.3% after Morgan Stanley downgraded the automaker to “underweight” from “equal-weight,” expressing caution about European carmakers due to shrinking margins and potential trade disputes.

European stock markets in Switzerland, Sweden, and Denmark were closed for the Whit Monday holiday.