Fed optimism lifts European shares to nine-week highs ahead of ECB

European shares rallied to nine-week highs on Thursday, driven by hopes the Federal Reserve was done with interest rate hikes and some upbeat earnings reports, while investors looked ahead to the European Central Bank’s policy decision.

The pan-European STOXX 600 index rose 0.8% to hit its strongest level since May 22.

Futures signalled a strong open on Wall Street, a day after the Fed raised rates by 25 basis points as expected and spurred bets that the U.S. monetary tightening cycle was over.

The ECB is expected to raise interest rates for the ninth time in a row later on Thursday and keep the door open to further moves. The decision is due at 1215 GMT.

“We do not expect the central bank to pre-commit to a hike in September,” UniCredit (LON:0RLS) analysts wrote in a note.

“In contrast to the relatively balanced press conference from Mr. Powell, the ECB might highlight that it sees a need for rates to remain high for longer than markets currently expect. If this is the case, the likelihood of a similar positive market response to what we saw in the U.S. yesterday is low.”

While markets had fully priced in another rate hike from the ECB just a few weeks ago, investors are now split, with many expecting July’s move to be the last following weak economic data.

In a busy day of earnings, Nestle rose 1.5% after the world’s biggest packaged food company improved its full-year organic sales outlook as it raised prices again.

French lender and the euro zone’s biggest bank BNP Paribas (EPA:BNPP) climbed 3.5% it beat analyst estimates for net income in the second quarter.

The STOXX 600 is set for a second consecutive month of gains as hopes of an end to rate hikes and signs of resilience in the U.S. economy offset concerns about a slowing euro zone economy and profit growth.

Among regional markets, Spain’s IBEX added 0.7% to touch 2020 highs and Italy’s FTSE MIB rallied 1% to hit 2008 highs.

Airbus fell 1.8% after the planemaker removed an interim industrial target on the route to record jet output, while Volkswagen (ETR:VOWG_p) slid 3.3% after the German automaker lowered its 2023 outlook for deliveries.

French call-centre operator Teleperformance tumbled 9.8% after it downgraded its full-year revenue growth target and tempered talk surrounding its adoption of generative AI technologies.

British financial stocks were also a weak spot, with Barclays (LON:BARC) down 5.1% after it warned of growing pressure on its UK business.

St. James’s Place tumbled 11.6% as the asset manager reported a fall in half-yearly profit after tax.

Shares of oil majors Shell (LON:RDSa) and TotalEnergies (LON:TTEF) came under pressure after they reported sharp falls in second-quarter profit from bumper 2022 earnings.

Fed optimism lifts European shares to nine-week highs ahead of ECB