European shares log weekly gains on China optimism, hopes for pause at ECB

By Bansari Mayur Kamdar and Shashwat Chauhan

(Reuters) -European shares marked weekly gains on Friday, as better-than-expected Chinese data lifted luxury firms while investors took comfort from signs that the European Central Bank (ECB) is nearly done raising interest rates.

The pan-European STOXX 600 rose 0.2% to close at a five-week high, with luxury, mining and autos leading the sectoral gains.

French luxury names like Kering and LVMH climbed 1.8% and 2.5% after data showed China’s factory output and retail sales grew at a faster pace in August.

European stocks recorded their biggest percentage gain in six months on Thursday after the ECB raised its key interest rate to a record high of 4%, but with the euro zone economy in the doldrums, signalled that the hike was likely to be its last.

However, policymakers on Friday said the central bank will keep interest rates high for an extended period and could even raise them again if needed, pushing back on some market bets that euro zone rates will start falling as soon as next spring.

“It was never expected that the ECB would call the end of the hiking cycle,” said Bas van Geffen, senior macro strategist at Rabobank.

“For one, the inflation outlook remains far too uncertain to say this with confidence, and pre-emptively calling it quits could cost the ECB its credibility.”

The STOXX 600 added 1.6% for the week, with miners the top performers.

Euro zone finance ministers agreed that fiscal policy should be restrictive next year to help the ECB curb inflation, while balancing the need for investment.

The focus will shift to central bank meetings elsewhere, with the U.S. Federal Reserve and the Bank of England set to announce their rate decisions next week.

Among individual stocks, Sweden’s H&M shed 7.4% on reporting flat sales in its most recent quarter, lagging expectations as the fashion group struggles to attract customers while the cost-of-living crisis drags on.

Games Workshop Group jumped 10.6% after the miniature wargame maker said it expects to post a higher quarterly profit before tax.

Dutch suppliers of semiconductor giant TSMC such as ASML, ASMI and BE Semiconductor Industries fell by 3.5% to 6.6% after a Reuters report showed the Taiwanese firm has told its major suppliers to delay their deliveries of high-end chipmaking equipment.

(Reporting by Bansari Mayur Kamdar and Shashwat Chauhan in Bengaluru; Editing by Janane Venkatraman, Sonia Cheema and Hugh Lawson)