STOXX 600 gains amid ECB and Swiss rate decisions
European stocks edged higher as the European Central Bank (ECB) delivered a widely anticipated 25-basis-point rate cut, while Swiss stocks gained following an unexpected 50-basis-point rate reduction. Investor optimism was buoyed by robust corporate earnings and positive developments in China-related trade talks, with the STOXX 600 index closing 0.8% higher.
Swiss Surprise and ECB Expected Move
Swiss stocks rose after the central bank cut borrowing costs by a surprising 50 basis points, exceeding market expectations. Meanwhile, the ECB cut its interest rates by 25 basis points in its first consecutive rate cuts in 13 years, after a 25 basis points reduction in September 2024.
While the ECB refrained from signalling its next move, it reiterated its stance that future decisions will remain data-dependent. Dean Turner, chief eurozone economist at UBS Global Wealth Management, said, “Another cut is likely in December, and we expect this will be followed by a series of cuts at every meeting through to June next year.”
Sectoral and Regional Performance
Gains in small and mid-cap stocks, which climbed 0.4% each, lifted the STOXX 600 index 0.8% to two-week highs. Sectoral gains were led by defence stocks, which increased by 2.6%, while cyclicals such as financial services, banks and industrial goods outperformed. Major European markets, including France and Italy, closed higher while Germany’s DAX closed at an all-time high.
Moreover, strong earnings reports continued to improve investor sentiment. Nordea gained 6.3% after it raised the forecast and declared a share buyback programme. Pharmaceutical equipment supplier Sartorius shares surged 17.7% after better-than-expected bio-processing order intake.
Market Optimism is Driven by Corporate Earnings
British Pest Control Company, Rentokil Initial rose 8.7% as plans were announced to extend organic growth initiatives into North America, while Nestlé recovered 2.5% after reversing early losses on the back of positive management comments.
However, some stocks faced problems. British packaging firm Mondi sank 7.4% on third-quarter profits, and Nokia slipped 2.5% after missing sales estimates and announcing it would cut more jobs in China and Europe.
Outlook Remains Data-Driven
The ECB's rate cuts look set to spur economic growth in the eurozone, with inflation teetering more and more under control. Small and mid-cap eurozone stocks are “attractive value” and benefit from monetary easing, Turner said.
Markets, while cautiously optimistic, are watching with upbeat investor sentiment and corporate earnings, as ECB decisions and economic recovery take hold.