by CORENTIN CHAPPRON

PARIS (Reuters) – European stock markets ended higher on Tuesday, with the latest indicators published in the United States showing the resilience of the American economy on the eve of the Fed’s monetary policy decision.

In Paris, the CAC 40 rose by 0.51% to 7,487.42 points, while the German Dax rose by 0.52% and the British Footsie strengthened by 0.38%.

The EuroStoxx 50 index ended the session up 0.7%, while the FTSEurofirst 300 gained 0.38% and the Stoxx 600 gained 0.42%.

Investors welcomed the latest data from the United States, which suggested that activity remained robust across the Atlantic despite restrictive rates.

Retail sales rose 0.1% in August, beating consensus expectations for a decline in the indicator, while the NAHB housing sentiment gauge improved slightly more than expected in September.

Industrial production in August also surprised to the upside in August, suggesting, after the better-than-expected “Empire State” indicator released on Monday, that activity in the industrial sector was finally picking up after more than two years of recession.

All of these data, which demonstrate the solidity of American activity despite the rate increases, remove the prospect of a significant rate cut on Wednesday: money markets now estimate a 50 basis point cut on Wednesday as 59% likely, compared to 69% given earlier in the session.

“A rapid return to neutral is justified, and (Fed) Chairman Jerome Powell is likely to argue for a 50 basis point cut, but the question is whether the other members of the governing council share his view,” observes James Knightley, economist at ING.

A WALL STREET

The New York Stock Exchange is up mid-session, supported by the latest activity figures, which could lead the S&P 500 to a record close.

At the time of the European closing, trading on the New York Stock Exchange indicated a 0.28% increase for the Dow Jones, against 0.4% for the Standard & Poor’s 500, and 0.66% for the Nasdaq Composite.

VALUES

The European defense sector declined after a Bloomberg report suggested that some of Ukraine’s allies are considering a ceasefire. The defense sector fell 1.8%.

Thales declined by 3.8%, the biggest drop in the CAC 40, while Dassault Aviation lost 2.7%.

Kingfisher, the owner of B&Q and Brico Depot, raised its full-year profit forecast on stronger-than-expected demand and jumped 10.9%. The consumer discretionary sector ended the day ahead of the Stoxx 600, up 2.8%.

Essentra, a supplier of plastic and metal components, said Tuesday it expected full-year operating profit to fall 15.4 percent below expectations.

RATE

Yields rebound as investors consider a 50 basis point rate cut on Wednesday less likely.

The yield on the German ten-year rose 2.7 bp to 2.147%, while the yield on the two-year rate gained 5.1 bp to 2.233%. At the time of the European close, the yield on the ten-year Treasury rose 2.8 bp to 3.6494%, while the yield on the two-year security rose 6.2 bp to 3.6174%.

CHANGES

The dollar is recovering against other currencies, with investors expecting the Fed to cut rates less sharply than expected on Wednesday.

The dollar gained 0.16% against a basket of benchmark currencies, the euro eroded 0.13% to $1.1117, and the pound sterling lost 0.4% to $1.3163.

OIL

Crude oil prices are rising, driven by the latest figures published in the United States which demonstrate the resilience of activity across the Atlantic.

Brent rose 0.85% to $73.37 per barrel and light US crude (West Texas Intermediate, WTI) rose 1.26% to $70.97.

(Written by Corentin Chappron, edited by Blandine Hénault)

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