European Stocks Hit Record High on Rate-Cut Bets, China Stimulus

(Bloomberg) — European equities hit a record high Friday, boosted by China’s slew of stimulus measures and growing conviction that US and euro-area interest rates will fall further in the coming months. 

The Stoxx Europe 600 Index rose 0.5% by the close after fresh data cemented bets for further US rate cuts. The Federal Reserve’s preferred measure of underlying inflation and household spending rose modestly in August, underscoring a cooling economy.

Luxury companies such as Richemont SA, Hermes International SCA and Kering SA extended gains on expectations that Chinese growth-boosting measures will benefit European exporters. Chemicals and autos were also among the top performing sectors. 

Europe’s biggest luxury stock, LVMH, got added impetus from an announcement it would invest in designer outdoor label Moncler SpA, in a deal that will give it a seat on the Italian company’s board. Moncler jumped as much as 15%.

“This is one of the turning points of the year,” said David Kruk, head of trading at La Financiere de L’Echiquier in Paris. “I have the feeling now that everyone is going to go with the flow,” he said, referring to buying cyclical stocks and stocks exposed to the Chinese economy. 

By contrast, health care stocks, typically seen as safety plays, were among the day’s worst performers. Novo Nordisk A/S shares dropped after JPMorgan flagged that the Danish drugmaker’s third-quarter report may disappoint, due to slower-than-expected sales of its blockbuster weight-loss drug Wegovy.  

While Europe’s growth slowdown has weighed on the market, stocks are getting a lift from the prospect of lower interest rates. Traders added to bets that the European Central Bank will cut again in October, after data showed inflation in France and Spain easing below 2%. 

After the Fed opted for an outsize half-point cut this month to kick off its easing cycle, investors are split over whether it will take a similar step or opt for a smaller move in November, according to futures.

For more on equity markets:

• The Risk-Reward on Retail Looks ‘Questionable’: Taking Stock
• Luxury Stocks Set for Best Week in Years as China Fuels Revival
• Europastry Marks Latest Mid-Cap European IPO Comeback: ECM Watch
• US Stock Futures Unchanged; Establishment Labs, TransMedics Gain
• Glass Half Full: The London Rush

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