European shares jump to fresh record after US inflation data

European shares record high

European shares surged to new record highs on Tuesday, driven by gains in automakers and banks, as investors maintained expectations of an interest rate cut by the Federal Reserve in June following the release of US inflation data.

The pan-European STOXX 600 index closed up 1%, marking a strong performance despite some initial hesitation after the US consumer price data was released. While headline prices rose in February due to higher gasoline and shelter costs, the increase in the annual core figure, which excludes volatile food and energy prices, was the smallest since May 2021.

Traders reacted cautiously to the inflation data, sticking to their bets that the Fed would likely initiate its easing cycle in June. Stuart Cole, chief economist at Equiti Capital, noted that market participants might have found relief in the slight moderation of core inflation. The STOXX 600 has been on an upward trajectory in 2024, fueled by expectations of rate cuts by the European Central Bank (ECB) following a recent slowdown in euro zone inflation.

Germany's DAX index closed at a fresh record high, buoyed by data confirming a decrease in domestic inflation in February. Cole suggested that the ECB might take the lead in implementing rate cuts, with the Fed likely to follow suit cautiously due to concerns about potential inflationary pressures.

French blue-chip shares also reached all-time highs, while the UK's FTSE 100 index reached its highest level since May 2023.

The automobile sector saw significant gains, with Europe's automobile index rising by 2.4%. Porsche led the rally with an 11.5% increase after investors showed renewed interest in the stock following an initially tepid response to the company's results.

Banking stocks, sensitive to interest rate movements, climbed 1.9%, marking their largest daily percentage gain in five months.

Shares of Wacker Chemie surged by 5.7% after the chemicals maker provided a first-quarter outlook that surpassed market expectations. The company attributed the positive outlook to a stronger order intake, particularly in its silicone business.

However, not all sectors experienced gains. British homebuilder Persimmon saw its shares fall by 3.7% after missing profit expectations and issuing a warning about subdued market conditions throughout 2024.