European stocks rise slightly on optimistic expectations of interest rate peak

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European stocks recorded modest gains on Tuesday amid optimism among traders that central banks would not risk pushing global economies into recession by aggressively raising interest rates to combat inflation.

The Stoxx 600, representing the wider European region, increased by 0.2%, while the Cac 40 in France and the Dax in Germany rose by 0.1%. Trading volumes remained low as US markets were closed for the Independence Day holiday.

Similar market trends were observed in Asia, where stocks surged following the Reserve Bank of Australia’s decision to maintain interest rates at 4.1%. Policymakers were swayed by a faster-than-expected decline in the country’s annual inflation rate, dipping to a 13-month low of 5.6% in May from 6.8% the previous month. This development reassured investors, who had concerns about central banks tightening their monetary policies to curb persistent price pressures.

After the interest rate decision, Australia’s S&P/ASX 200 stock index gained 0.5%, while China’s CSI 300 and Hong Kong’s Hang Seng rose by 0.2% and 0.6%, respectively. Japan’s Topix, on the other hand, experienced a decline of 0.6%.

Oil prices saw an increase on Tuesday after Saudi Arabia and Russia, two of the world’s largest oil producers, announced supply cuts for August.

The international benchmark, Brent crude, rose by 0.8% to trade at $75.27 per barrel, while US marker West Texas Intermediate rose by 0.9% to $70.42.

In terms of stocks, Germany’s Dax incurred significant losses in the energy and basic materials sectors, with the Stoxx 600 Basic Resources index dropping by 0.5%.

Furthermore, new data revealed that German exports declined by 0.1% in the month of May due to high interest rates impacting the country’s key trading partners. The figures fell short of analysts’ expectations of a 0.3% increase.

Carsten Brzeski, the global head of macro at ING, commented on the situation, stating, “Trade is no longer the strong resilient growth driver of the German economy that it used to be but rather a drag. The expected slowdown of the US economy, high inflation, and high uncertainty will clearly have an impact on German exports.”

Additionally, a survey conducted by the Ifo economic research institute displayed a significant deterioration in Germany’s business climate in the chemical industry, with the indicator for the sector dropping to minus 28.3 points in June from minus 12.5 in May.

Investors are eagerly awaiting new economic data this week, with the highly anticipated US employment report on Friday expected to provide insights into the Federal Reserve’s future policy decisions.