European shares rise ahead of rate decisions, inflation data

The pan-European STOXX 600 added 0.4 per cent, holding to its highest level in 22 months

European shares rose at the beginning of an event-heavy week as investors braced for a key U.S. inflation print and interest rate decisions from major global central banks, while weakness in metal prices dragged miners.

The pan-European STOXX 600 added 0.4 per cent, holding to its highest level in 22 months.

The index has gained 11.6 per cent so far this year, mainly bolstered by speculations of interest rate cuts on evidence of slowing inflation and a likely shallow recession in the euro zone economy.

Goldman Sachs raised its 12-month forecast for the pan-European index to 500, implying around 6 per cent gain through 2024-end, on expectation of lower interest rates.

The STOXX 600 has underperformed its U.S. peer S&P 500's around 20 per cent jump, with Wall Street benefiting from an investor rush for AI stocks.

We have certainly had an extraordinary sort of early Santa rally and probably the biggest fundamental driver of that has been this dramatic decline in global bond yields, said Ben Laidler, global markets strategist at eToro.

In an assessment for the market's growing bets of monetary policy easing globally are key U.S. inflation reports and interest rate decisions from the Federal Reserve, the Bank of England and European Central Bank through this week.

The challenge for this week is if you are going to get a central bank fight back against this dramatic market repricing of early rate cuts, Laidler said.

Investors appear to be looking past the European Central Bank's view that rates will stay high for some time, with arch-hawk Isabel Schnabel's sudden dovish turn and expectations of the ECB lowering its growth and inflation projections for next year also supporting such sentiment.