European shares climb as investors rethink the likelihood of a rate hike

• Stoxx Europe 600 index was up 0.6% by early afternoon in London, following its first weekly rise in a month.
• FTSE 100 in London and the Xetra Dax in Frankfurt each gained 0.7%.
• Wall Street’s benchmark S&P 500 index will maintain its 3.1% gain on Friday and advance 0.5%.

European shares and US stock futures inched higher on Monday, extending a rebound last week, as traders pondered the extent to which sluggish growth will temper central banks’ ambitious interest rate hike forecasts.

The regional Stoxx Europe 600 index was up 0.6% by early afternoon in London, following its first weekly rise in a month, but remained more than 14% lower year-to-date. The FTSE 100 in London and the Xetra Dax in Frankfurt each gained 0.7%.

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Futures trade showed that Wall Street’s benchmark S&P 500 index will maintain its 3.1% gain on Friday and advance 0.5%. Contracts tracking the technology-heavy Nasdaq 100, which is comprised of growth stocks that have plummeted this year due to rising interest rates diminishing the attraction of more risky trades, increased by 0.6%.

The FTSE All-World index of worldwide stocks has declined by almost one-fifth this year, as the Federal Reserve and other global rate-setters tightened monetary policy in response to soaring consumer price inflation in the United States, which is now running at an annual rate of 8.6%.

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However, weaker economic data has spurred rumours that the Federal Reserve, whose activities are closely tracked by many other central banks, may not need to raise interest rates as much as previously anticipated.

The previous week, global purchasing managers’ indices revealed that businesses were already suffering from tighter financial circumstances and a decline in consumer demand. Futures markets are now pricing in a fed funds rate of 3.5% by the beginning of 2023, compared to 3.8% two weeks ago.