(Bloomberg) -- European stocks advanced along with US stocks after the region’s retail sales data pointed to resilient consumer demand, bolstering confidence in the world’s biggest economy ahead of a highly anticipated interest-rate decision by the Federal Reserve.
The Stoxx Europe 600 Index advanced 0.4% at the close in London as US tech stocks rebounded from Monday’s slump. Retail and travel and leisure stocks led the advance in Europe, after Ryanair CEO said the airline has seen better bookings momentum since August. Healthcare and real estate stocks underperformed.
US retail sales excluding autos and and gasoline stations unexpectedly increased for a fourth month. Still, “the Fed is data dependent not data-point dependent,” said Blerina Uruci, chief US economist at T. Rowe Price, in a Bloomberg TV interview. “Into the decision it’s essentially a coin flip, I don’t disagree with market expectations” on whether it will be a 25-basis-point cut or more, she said.
Mohit Kumar, chief strategist and economist for Europe at Jefferies, said market expectations are “leaning toward” a 50-basis-point cut, which would be positive for risky assets.
Bond traders are favoring bets that Fed will kick off its interest-rate cutting cycle with a half-point move, undeterred by retail sales data. The market-implied odds that policymakers announce a 50-basis-point rate reduction on Wednesday were around 55%.
Meanwhile, a global survey by Bank of America Corp. showed optimism around Fed rate cuts has boosted investor sentiment for the first time since June.
Still, BofA said investors are “nervous bulls,” with its poll also showing a big rotation into bond-sensitive sectors such as utilities, and away from those that typically benefit from a robust economy.
The regional European benchmark rebounded last week after the European Central Bank cut interest rates as expected. Still, there’s plenty of uncertainty about the policy path. While the ECB will reduce rates further, it shouldn’t do so too hastily due to lingering inflation risks, according to Governing Council member Martins Kazaks.
Over in Germany, the ZEW indicator investor expectations index — a sentiment indicator that measures expert opinions regarding the German economy — fell more than economists expected in September, which adds to the uncertainty about the strength of the economy.
Among individual stocks, Flutter Entertainment Plc gained after it agreed to buy Playtech Plc’s Italian gambling business for an enterprise value of €2.3 billion ($2.6 billion). Essentra Plc shares slumped as much as 25% after a profit warning. THG Plc also dropped after the online retailer reported weaker-than-expected first-half results.
In other corporate news, UniCredit SpA may seek ECB authorization in the coming days to raise its stake in Commerzbank AG to 30%, while Deutsche Bank AG is exploring options to make it harder for the Italian bank to buy Commerzbank.
For more on equity markets:
- Equities Price Big Rate Cuts, But No Recession: Taking Stock
- M&A Watch Europe: Flutter, Rexel, Commerzbank, Greenvolt, THG
- Shein IPO Plans Draw Fresh Scrutiny From UK Lawmaker: ECM Watch
- US Stock Futures Little Changed
- Playtech Holding Aces: The London Rush
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--With assistance from Michael Msika.
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