by Diana Mandia

(Reuters) – European stocks ended higher on Monday, buoyed by the prospect of a second euro zone interest rate cut when the European Central Bank (ECB) meets on Thursday.

In Paris, the CAC 40 gained 0.99% to 7,425.26 points. In Frankfurt, the Dax advanced 0.71% and in London, the FTSE 100 gained 1.09%.

The EuroStoxx 50 index ended up 0.80%, the FTSEurofirst 300 up 0.81% and the Stoxx 600 up 0.76%.

The main monetary policy meeting of the week, the ECB meeting is expected to conclude on Thursday with a 25-point cut in interest rates in the euro zone, the second since June, which benefited stock markets on Monday after a series of difficult sessions that ended on Friday with the worst day for the STOXX in more than a year.

While the scale of the reduction is unlikely to hold any major surprises, the path of monetary policy beyond that remains uncertain and ECB President Christine Lagarde’s comments on the possibility of further reductions in October and December will be closely watched.

“It is almost certain that the ECB will lower its rates to 3.5%. But it will probably not make a clear commitment on what will happen next, because macro forecasts are not expected to be significantly revised and fears about the persistence of inflation in services and wages remain significant,” LBP AM emphasizes.

In a sign of the continuing challenges, investor sentiment in the euro zone fell for the third consecutive month in September, hitting its lowest level since January amid economic concerns, a survey showed on Monday.

In France, the bloc’s second-largest economy, INSEE lowered its third-quarter growth forecast from 0.5 to 0.4% on Monday, citing uncertainties related to the political situation and the prolonged slowdown in the German economy, despite the one-off positive effect of the Olympic and Paralympic Games.

The week will also be rich in data that will fuel the debate on the resilience of the economy and progress in the fight against inflation, with the publication in particular of inflation figures from Germany, Spain and France and data on employment and GDP from the United Kingdom.

Across the Atlantic, investors are still digesting the August jobs report, which gave no definitive answer to the extent of the slowdown in the U.S. labor market and left open the question of whether the Federal Reserve will cut rates by 25 or 50 basis points.

“There is no doubt that the US economy is slowing, but equally there is no reason to talk about a hard landing just yet,” said Kit Juckes, an analyst at Societe Generale.

Traders now see a 73% chance of a 25 basis point rate cut by the Fed next week, according to data from CME Group.

In this context, the US inflation data expected on Wednesday will be particularly closely watched.

VALUES

In Paris, luxury goods were penalized again by concerns about the slowdown in Chinese demand. Kering posted the biggest drop in the CAC 40 on Monday, dropping 2.5% after downgrades by Barclays and RBC, both citing the difficulties of the Gucci brand.

The travel sector gained 2.18%, helped by a gain in British gaming group Entain (+5.9%), which said the second half of this year had started better than expected.

In Frankfurt, Adidas AG fell 3% after Barclays downgraded the stock to “underweight”.

HSBC, which Bloomberg reported is considering merging its commercial and investment banking divisions to eliminate duplication within the group and reduce costs, gained 1.9%.

A WALL STREET

At the time of the European closing, the Dow Jones gained 1.41%, the Standard & Poor’s 500 1.06% and the Nasdaq Composite 0.84%, driven by hopes of a soft landing for the American economy and after the sharp drop on Friday due to mixed employment data.

Boeing, which reached an agreement with a union in the Seattle-Portland area allowing it to defuse a strike call on September 13, is up 3.7%.

CHANGES

The greenback is strengthening as traders increasingly bet on a 25-point rate cut from the Fed next week, rather than an aggressive 50-point cut.

The dollar gained 0.36% against a basket of benchmark currencies, while the euro lost 0.35% to 1.1044 dollars.

RATE

Eurozone bond yields ended the session slightly lower after posting gains for most of the day as traders bet on upcoming rate cuts from the ECB and the Fed.

The yield on the 10-year German Bund fell 0.4 basis points to 2.1680%. The two-year fell 1.5 basis points to 2.2130%.

In the United States, the yield on ten-year Treasuries lost 0.8 basis points to 3.7023%.

OIL

Oil prices rose Monday, recouping some of their heavy losses from the previous week as a potential hurricane approaches the Gulf Coast and could disrupt production.

Brent rose 0.75% to $71.59 per barrel and US light crude (West Texas Intermediate, WTI) rose 1.11% to $68.42.

(Written by Diana Mandiá)

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