European Stocks Grapple with US Rate Uncertainty, But Secure Weekly Gains

European shares experienced a decline on Friday amidst subdued risk sentiment fueled by mounting concerns that the Federal Reserve might postpone interest rate cuts.

However, the strength in telecommunications stocks partially offset the losses. The pan-European STOXX 600 index ended the day 0.2% lower after reaching record highs in three of the past five sessions.

Despite this setback, the STOXX 600 marked its eighth consecutive week of gains, buoyed by positive corporate updates and anticipation of interest rate cuts from the European Central Bank.

Market participants are finding solace in the recent slowdown of inflation in the eurozone, especially with some European Central Bank policymakers advocating for a rate cut in June.

Andrew Kenningham, Chief Europe Economist at Capital Economics, stated, “With inflation projected to meet its target in the latter half of the year, the ECB is expected to decrease its deposit rate from 4% to 3% by year-end and to approximately 2.25% by mid-2025.”

Meanwhile, unexpected inflationary figures from the United States earlier this week have complicated the Federal Reserve’s monetary policy trajectory.

Jose Torres, Senior Economist at Interactive Brokers, remarked, “Investors are now considering the possibility of rate relief in July rather than June, with expectations for the earlier month nearing a 50-50 chance.”

The rate-sensitive real estate index (.SX86P) experienced a 2.0% decline on Friday, making it the worst sectoral performer for the week. This decline was primarily driven by a 10.6% drop in Vonovia (VNAn.DE) shares following the company’s significant loss in 2023 due to property value writedowns.

However, Swisscom (SCMN.S) shares saw a 4.9% increase after announcing its acquisition of Vodafone Italia for 8 billion euros ($8.7 billion) and plans to merge it with its Italian subsidiary Fastweb.

Vodafone’s stocks surged by 5.7%, propelling the broader telecommunications sector up by 1.5%. Despite a 6.6% decline in active customers for HelloFresh, its shares rallied by 10.9% on the STOXX 600.

Conversely, LPP shares sank by 35.8% following allegations from Hindenburg Research regarding the authenticity of its Russian asset sale.

In France, consumer prices rose slightly more than initially expected year-on-year in February, while Italian EU-harmonised consumer prices were up 0.8% from a year earlier.

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