Europe stocks down; FTSE flat on firmer pound, higher yields

The FTSE 100 was flat, the CAC was down in Paris and the Frankfurt DAX was also 0.1 per cent down, while the STOXX 600 was 0.2 per cent lower

European stock markets were mainly in the red on Thursday, while Wall Street gained, as UK house prices increased for a second consecutive month and US jobless claims also increased.

In London, the FTSE 100 was trading flat by the end of the day, as a firmer pound weighed on the exporter-heavy index and while higher government bond yields also dampened risk appetite.

The CAC was down in Paris and the Frankfurt DAX was also 0.1 per cent down, pulling back from its record high on Wednesday. The STOXX 600 was 0.2 per cent lower at one point.

The personal goods sector drop declined early on, dropping more than 2 per cent.

In the US, the S&P 500 gained 0.5 per cent by the time of the European close, and the tech-heavy Nasdaq was up 0.9 per cent. The Dow Jones was flat.

The outperformance on European markets seems to be being led by the growing belief that the ECB may well be forced into cutting rates sharply in the early 2024 in response to sharply slowing inflation and a sclerotic economy, Michael Hewson, chief market analyst at CMC Markets UK, said.

The last few days has seen a sharp drop in bond yields reflecting a growing belief on the part of investors that instead of higher for longer, central banks will start cutting rates as soon as second quarter of next year, he added.

The shift in tone has been most notable from several European Central Bank policymakers who have indicated that rate hikes are done, he said.

Meanwhile, Neil Wilson at Markets.com said: The market is already pricing in a lot of cuts next year and it is unclear if the narrative can hold beyond the FOMC (Federal Open Market Committee) and European Central Bank next week. Soft jobs figures so far are not undermining it.