European stock markets saw an uptick in positive momentum, with the FTSE 100 leading the charge. This rally was driven by the cooling of U.K. inflation, adding to growing optimism that central banks will initiate monetary policy easing early next year. At 03:10 ET (08:10 GMT), the German DAX index traded 0.2% higher, the French CAC 40 was up 0.3%, and the U.K.'s FTSE 100 surged by 1.5%.
Sharp Slowdown in U.K. Inflation
Earlier on Wednesday, data revealed that U.K. annual consumer price inflation experienced a significant drop in November, falling from 4.6% in October to 3.9%, marking the lowest rate since September 2021. The core annual figure, which excludes volatile food and energy prices, also saw an unexpected decline, dropping from 5.7% to 5.1%.
While the Bank of England held its main interest rate steady at its recent meeting, it indicated that rates would remain elevated for "an extended period." However, with the rapid progress in bringing inflation back towards the bank's 2% medium-term target, market expectations are rising for a rate cut in the first half of the new year to support the slowing economy.
German Consumer Sentiment Improves
German producer prices also decreased more than anticipated, showing a 0.5% drop in November and an annual decline of 7.9%. This reduction in factory gate prices is expected to contribute to an improvement in German consumer sentiment at the start of the new year, according to a GfK institute survey. The consumer sentiment index rose to -25.1 points heading into January, up from a revised -27.6 in the previous month and surpassing expectations.
The European Central Bank (ECB) maintained its interest rates last week. Although ECB President Christine Lagarde rejected any notion of a dovish pivot, eurozone CPI remained at an annual rate of 2.4% in November, not far from the central bank's 2% target. This has led investors to anticipate several rate cuts from the ECB next year, potentially starting in the first quarter.
In corporate news, Petrofac's stock (LON:PFC) soared higher after the oilfield services company expressed confidence in its outlook, supported by robust orders. This includes a second contract award under the six-project, $14 billion deal with the Dutch electricity transmission system operator TenneT, valued at approximately $1.4 billion.
Oil Prices Stabilize Amid Geopolitical Tensions
Oil prices stabilized as traders monitored the volatile geopolitical situation in the Red Sea and digested an unexpected increase in U.S. crude stockpiles. By 03:10 ET, U.S. crude futures traded 0.6% higher at $74.42 a barrel, while the Brent contract climbed 0.5% to $79.64 a barrel. Oil prices had rebounded significantly from nearly five-month lows due to concerns about attacks by the Yemen-backed Houthi group on vessels in the Red Sea, potentially disrupting oil supplies to the Asian market. However, gains moderated after data from the American Petroleum Institute showed an unexpected 900,000-barrel increase in U.S. crude inventories last week.
Furthermore, gold futures rose 0.1% to $2,053.25 per ounce, while EUR/USD traded 0.1% lower at 1.0966.
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