European shares rose as investors see signs that the Federal Reserve may slow interest rate hikes

LONDON (Reuters) – European shares rose in early trading on Tuesday, as investors took confidence from signs that the US Federal Reserve may slow interest rate increases, although concerns about the Chinese economy continued to weigh on Asian markets.

Asian stocks struggled to gain on uncertainty over whether Xi Jinping’s new leadership team will prioritize economic growth. The inland Chinese yuan ended the local session with its weakest close since late 2007.

European stock indices opened higher, with the STOXX 600 index up 0.4% at 0809 GMT. (.stoxx).

The MSCI World Stock Index, which tracks stocks in 47 countries, was up 0.1% on the day (.MIWD00000PUS) The MSCI European Leading Index (.MSER) Recorded a five-week high, up 0.8% on the day (.MSER).

“The immediate cause appears to be some hope that the pace of central bank tightening may start to slow later this year and this is giving some investors reason to take comfort,” said Hani Reda, portfolio manager at Pinebridge Investments.

Data on Monday showed business activity in the United States contracted for the fourth consecutive month, suggesting that the Federal Reserve’s rate hikes have blunted the economy, which in turn raised hopes that the central bank will begin to slow the pace of the increases.

The expected peak for Fed rates has fallen to around 4.93%, from above 5% early last week.

Economists polled by Reuters said the central bank should not stop until inflation has fallen to about half its current level.

Some better-than-expected earnings results also supported European stock market sentiment, with Swiss bank UBS (UBSG.S) Among those who have exceeded market expectations. But Europe’s largest bank, HSBC, reported a 42% drop in third-quarter profit, which led to a 4% drop in its shares. (.HSBA.L).

Tech giants Alphabet and Microsoft will report their earnings later in the session.

Pinebridge’s Redha said earnings estimates have fallen in recent months but the pace has been “fairly modest”.

“The potential relief that investors are feeling regarding the approaching end of the hiking cycle appears to dominate lower earnings estimates.”

The US Dollar Index was higher on the day, up 0.1% at 112.01.

The euro fell 0.1 percent to $0.98675. The European Central Bank meets on Thursday and is set to raise interest rates by 75 basis points.

The British pound rose 0.2% to $1.1309. It recovered from session lows and gold yields fell sharply on Monday in a sign of investor relief when it was announced that former Finance Minister Rishi Sunak would be the next prime minister.

Eurozone government bond yields fell, with the German benchmark 10-year yield falling 7 basis points at 2.272%.

German business sentiment eased slightly in October, but the data still beat analyst estimates.

The data “suggests that business sentiment is at least bottoming,” Karsten Brzeski, global head of ING Macro, said in a client note. But this does not mean that any improvement in the economy is near.”

Oil prices rose, although gains were limited by concerns about slowing growth in the United States and China.

Elizabeth Howcroft reports

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