European shares rose on Tuesday, boosted by gains in banks on prospect of aggressive interest rate hikes following hawkish comments by U.S. Federal Reserve Chair Jerome Powell.
The pan-European STOXX 600 (.STOXX) gained 0.9% after a lacklustre start to the week, helped by a 2.5% jump in European banks (.SX7P).
Other cyclical sectors such as insurers (.SXIP) and autos (.SXAP), preferred bets for a rising rates scenario, rose 2.0% and 1.6% respectively.
Powell said on Monday the central bank must move “expeditiously” to raise rates and possibly “more aggressively” to battle red-hot inflation, just as markets digested last week’s 25-basis-point rate hike.
“Up until now, the Fed had been quite dovish… The fact that they are looking to do raise rates more quickly and more decisively has certainly bolstered the financial sector today,” said Danni Hewson, financial analyst at AJ Bell.
Money markets are now pricing an around 50 basis points of rate hikes by the European Central Bank (ECB) by the end of the year. IRPR
The ECB said earlier this month that it would not be in a hurry to raise rates but many conservative policymakers have argued that a rate hike, the first such move in over a decade, should remain on the table as inflation is not as temporary as the central bank once expected.
London’s FTSE 100 index (.FTSE) closed 0.5% higher, helped by banking stocks. The oil exporter-heavy index pared some of its early gains after oil prices dipped as the dollar strengthened and it looked unlikely that the European Union would pursue an embargo on Russian oil.
The STOXX 600 index has fallen more than 6% so far this year, while the commodity-heavy FTSE 100 has outperformed with gains of 1.1% during the same period.
Europe’s largest online restaurant food ordering service Just Eat Takeaway.com (TKWY.AS) gained 3.2% on a partnership with McDonald’s Corp (MCD.N) to expand delivery.
Italian defence group Leonardo (LDOF.MI) was 0.4% higher after its U.S. unit DRS agreed to sell its satellite communications business GES to SES (SESFg.LU) for $450 million.
Finland’s Nokian Tyres Plc (TYRES.HE) said it would continue production in Russia to retain control of its local factory, at a time when many companies are halting operations in protest. Shares of the company fell 0.3%.
Tech giant SAP (SAPG.DE) rose 0.6% after announcing a venture with Boston Consulting Group to help some of the world’s biggest companies overhaul their business strategy and accelerate their efforts to cut carbon emissions.
