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FX.co ★ European stocks rise dramatically

European stocks rise dramatically

On Tuesday, key European stock indices rose after a prolonged decline the day before. However, investors continue to discuss the prospects of a global economic recession and analyze the Fed and other global regulators' hawkish decisions on monetary policy.

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European stocks rise dramatically

At the time of writing, the STOXX Europe 600 index of Europe's leading companies advanced by 1.16% to 393.25 points.

The French CAC 40 gained 0.73%, the German DAX added 0.68%, and the British FTSE 100 increased by 0.11%.

As a result of the previous three trading sessions, the British FTSE fell by 3%, the German DAX lost 4.3%, and the French CAC was down 4.4%.

Top gainers and losers

The stocks of Italian Nexi SpA, specializing in payment solutions, rose by 6.8%. Earlier, its management announced that it expected to receive a free cash flow of 2.8 billion euros from 2023 to 2025. The proceeds will be used for M&A deals and share buyback.

The shares of German energy company Uniper SE soared by 10.6%.

The market capitalization of Swiss online pharmacy chain Zur Rose Group AG rose by 6.7%.

The shares of British Admiral Group PLC, which specializes in auto insurance, decreased by 6%.

The stocks of Bank of Cyprus Holdings collapsed by 10%. The day before, the news broke in mass media that private equity fund LSF XI Investments LLC had no plans to improve its offer to buy the bank.

Market sentiment

On Tuesday, European investors continued to analyze the outcome of the US Federal Reserve's September monetary policy meeting published last week. Market participants are afraid of both global and eurozone recession in particular after the US regulator's hawkish decisions.

On Wednesday, the US central bank raised its key rate range by 75 basis points to 3-3.25%, the highest since 2008.

The Fed also lowered its forecasts for US gross domestic product and raised its estimates of inflation and unemployment for 2022-2023. Moreover, US Central Bank officials said they would continue to reduce their holdings of Treasury and mortgage-backed securities and agency debt. The latest news from the US Federal Reserve gave investors an idea of the future prospects of the interest rate in the face of a permanently rising inflation rate.

Notably, the US Federal Reserve already raised its key rate by 25 basis points in March 2022. Moreover, it raised the rate by 50 and 75 basis points in May and in June respectively.

Moreover, at the end of last week, the Bank of England raised the discount rate by 0.5%. It was the seventh consecutive increase in the rate.

As part of its September meeting, the British regulator also adjusted its next steps in monetary policy according to the measures of Liz Truss's new cabinet to limit energy prices.

Notably, the Bank of England representatives predicted at the August meeting that inflation in the country would peak at 13.3% by the end of 2022. Then the UK will plunge into recession and it will not end until early 2024.

On Thursday, the Swiss central bank hiked rates by 75 basis points to 0.5%. The September rate hike was the second in a row: in June it was increased by 50 basis points to minus 0.25%. Consequently, the inflation rate in Switzerland was at its highest point in the last thirty years, i.e. 3.5% year-on-year.

Earlier at its September meeting, the European Central Bank raised the main base rate on loans to 1.25%, the rate on deposits to 0.75%, and the rate on marginal loans to 1.5%. At the same time, the discount rate was increased immediately by 0.75% for the first time in history.

Moreover, the Central Bank members noted that the regulator intended to continue raising the rate in the upcoming meetings. ECB President Christine Lagarde said that further pace of interest rate hikes would depend on the coming statistical data.

Therefore, global central bank decisions on monetary policy in September 2022 were considered the most aggressive in the past years.

Moreover, reports about operational problems of the Nord Stream pipeline became an additional cause for investors' concern. In recent months, the prospects of declining energy supplies in Europe have been one of the key reasons for the permanent worsening economic crisis in the euro area.

On Tuesday, stock market participants in the EU are closely monitoring the exchange rate of the British pound and government bonds. The day before, the British currency and the US dollar renewed their all-time lows. Meanwhile, 10-year British government bonds yields rose during trading to 4.246%, the highest level since 2008. Expectations of tax breaks in the UK caused these anti-records.

Last week, new British finance minister Kwasi Kwarteng announced significant tax cuts which would affect individuals and businesses and increase the budget deficit in 2022 fiscal year by more than 70 billion pounds.

Previous trading results

On Monday, European stock indices closed in the red.

Thus, the STOXX Europe 600 index of Europe's leading companies fell by 0.42% to 388.75 points.

The French CAC 40 declined by 0.24%, the German DAX lost 0.46%, and only the British FTSE 100 gained 0.03%.

The stocks of British financial company Virgin Money UK PLC sank by 6.7%.

The shares of German energy giant Uniper SE soared by 22.7%.

On Monday morning, the IFO Institute reported that business confidence in Germany fell to 84.3 points from 88.6 points in August. At the same time, the September indicator became the lowest since May 2020. Besides, market makers forecasted a decrease in business confidence in Germany only to 87 points.

Moreover, the weak results of the latest US trading session exerted additional pressure on the European stock market. On Friday, the Dow Jones Industrial Average index sank by 1.62%, the S&P 500 index lost 1.72%, and the NASDAQ Composite fell by 1.8%.

The day before, investors were also focused on Italy's elections. On Monday, the Italian Democratic Party conceded defeat in the early parliamentary elections held on Sunday.

A coalition of four right-wing parties that won 44% of the votes became leaders after 10% of ballots were processed and the official results were announced. The Brothers of Italy party won the most votes in elections.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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