by Claude Chendjou

PARIS (Reuters) – European stock markets closed higher on Friday and Wall Street was also in the green at mid-session, against a backdrop of a depreciation of the dollar and a rise in raw materials in reaction to expectations of a drastic rate cut by the U.S. Federal Reserve (Fed) next week.

In Paris, the CAC 40 ended with a gain of 0.41% at 7,465.25 points. The British Footsie gained 0.39% and the German Dax advanced by 0.92%.

The EuroStoxx 50 index rose by 0.54%, the FTSEurofirst 300 by 0.65% and the Stoxx 600 by 0.72%.

Over the week as a whole, the CAC 40 gained 1.5% and the Stoxx 600 1.8%.

At the time of the European closing, the Dow Jones was up 0.91%, the Standard & Poor’s 500 was up 0.57% and the Nasdaq was up 0.60%.

Ten of the 11 major sectors of the S&P 500 are in the green, led by the materials sector, which is part of the rise in precious metals prices.

The Wall Street volatility index, seen as a good barometer of fear, fell by more than 4.8% to 16.25 points, while the EuroStoxx 50 ended down 8.45% to 16.05 points.

The positive trend in the equity markets is supported by increased hopes of a 50 basis point cut in the Fed’s federal funds rate at the end of the September 17-18 meeting, and no longer just 25 points as widely anticipated previously.

Influential former New York Fed President Bill Dudley told a forum in Singapore that “there is a strong case for 50,” referring to a drop in borrowing costs of that magnitude.

“Until now I’ve been firmly in the 25 basis points camp. This makes me think they could go as high as 50 basis points,” said Fiona Cincotta, market strategist at City Index.

“It’s like a coin toss, and that’s what the market is showing, given the reactions we’re seeing in bonds, the yen, the US dollar and gold,” she added.

“We continue to favour a 25 basis point cut over a 50 basis point cut as the labour market and broader economy remain resilient,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a note, calling current expectations too high.

This uncertainty on rates translated into small gains in the European stock market, while in the metals sector, gold hit a record high against a backdrop of depreciation of the dollar. The weakness of the greenback also pulled the European basic resources sector, one of the best performers in the Stoxx 600, alongside real estate, which benefited from the decision on Thursday by the European Central Bank (ECB) to cut its key rates again against a backdrop of slowing inflation.

The consumer price index in France fell year-on-year in August to 2.2% by European standards and 1.8% by French standards, below the ECB’s 2% target.

VALUES IN EUROPE

Valneva plunged 10.45% after announcing it was raising €60 million through a capital increase.

Worldline fell by 14.34% with the announcement of the departure of its CEO and the lowering of its outlook for the 2024 financial year.

Bolloré rose 4.82% as the conglomerate announced the delisting of three of its subsidiaries as part of a plan to streamline and simplify its structure.

DSV (+0.98%) ended in the green after the group announced the acquisition of Schenker, the logistics branch of the German public railway company Deutsche Bahn.

Commerzbank rose 4.17%. According to a source, the German government and UniCredit (-0.85%) held talks after the Italian bank took a 9% stake in the German bank.

Campari fell 6.4%, with traders citing the Italian spirits group’s CEO as saying at a news conference that the environment was “very weak” for the sector in the current quarter. Diageo fell 1.43% and Pernod Ricard 2.74%.

Astrazeneca fell 1.01% as Deutsche Bank downgraded its rating on the lab to “sell” and cut its price target.

TODAY’S INDICATORS

Industrial production in the eurozone fell less quickly than expected in July, posting a decline of 0.3%, according to Eurostat.

U.S. consumer sentiment has improved more than expected since the beginning of September, to 69.0, according to preliminary results from the University of Michigan’s monthly survey.

CHANGES

The dollar fell to a nine-month low against the yen on Friday, at 140.36 (-1%), in reaction to reports of a possible drastic rate cut in the United States.

The American currency fell by 0.40% against a basket of international currencies and was notably down against the euro, the pound sterling and the Swiss franc.

The single European currency is trading at 1.1085 dollars (+0.10%), the president of the BCE, Christine Lagarde, having tried on Thursday to attenuate expectations of a new cut in rates in the euro zone in October.

RATE

The prospect of a 50-point cut in Fed rates next week is causing a sharp easing in the bond sector, where the yield on ten-year Treasuries is down two basis points, to 3.6607%, and that on two-year Treasuries is down 4.9 points, to 3.599%.

In Europe, the easing was notable especially in short-term yields, with the two-year Bund ending down around three points, at 2.206%.

OIL

The oil market is being driven by disruptions in production in the Gulf of Mexico in the United States with the passage of Hurricane Francine.

Brent rose 0.97% to $72.67 per barrel and US light crude (West Texas Intermediate, WTI) rose 0.99% to $69.65.

The two crude oil benchmarks are on track to gain around 2.4% and 3.4% respectively over the week as a whole.

METALS

Spot gold hit a record high of $2,583 an ounce on Friday and is heading for a gain of around 2.8% for the week as a whole, amid a weakening dollar.

(Written by Claude Chendjou, edited by Kate Entringer)

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