Strong European Equity Rally Follows Hawkish ECB Stance and BoE Rate Cut

European equity markets delivered a robust performance on Thursday, with major indices posting solid gains amid mixed signals from key central bank decisions. The session marked a turning point from the earlier subdued mood, as investors digested policy announcements and fresh economic data.

Central Bank Decisions Shape Market Direction

The Bank of England made a significant move, cutting its benchmark rate by 25 basis points to 3.75%, representing the lowest level in nearly three years. The Monetary Policy Committee voted 5-4 in favor of the reduction, signaling cautious optimism about further monetary accommodation ahead. Governor Andrew Bailey emphasized that rate cuts will likely proceed along a gradual downward trajectory.

In contrast, the European Central Bank maintained its current rate stance and struck a notably upbeat tone on regional economic prospects. The ECB’s revised forecasts, which lifted both growth and inflation projections for the EU, suggest policymakers see limited room for additional rate reductions in the coming months. The move closed the door on near-term easing expectations.

Sweden and Norway also held rates steady, maintaining their wait-and-watch posture as inflation concerns persist across the Nordic region.

Market Momentum Builds Across the Continent

The broad-based rally extended across continental Europe, with the pan-European Stoxx 600 advancing 0.96%. Major regional benchmarks all moved in positive territory: the UK’s FTSE 100 gained 0.65%, Germany’s DAX climbed 1%, and France’s CAC 40 closed 0.8% higher, while Switzerland’s SMI settled with a 0.82% gain. Most European markets participated in the upswing, including Belgium, Finland, Greece, Ireland, Netherlands, Poland, Portugal, Spain, Sweden, and Turkiye, though Czech Republic, Denmark, and Iceland ended lower. Norway closed on a flat note symbol, showing sideways momentum.

U.S. inflation data supporting expectations of additional Fed easing proved instrumental in lifting overall sentiment throughout the session.

Individual Stock Performance Highlights

In London, Whitbread emerged as a standout performer with a 6.3% surge, while Fresnillo climbed 4.4%. Mining and industrial names benefited broadly, with Rolls-Royce Holdings, Rentokil Initial, Melrose Industries, Smiths Group, and BAE Systems all posting gains between 2-4%. Glencore and JD Sports Fashion similarly advanced in this range. Defensive positions in Compass Group, 3i Group, Land Securities, and Scottish Mortgage also attracted buyers. However, Bunzl dropped 2.5%, and energy names including BP alongside consumer staples like GSK and Coca-Cola Europacific Partners retreated noticeably.

German equities participated enthusiastically, with Siemens Energy jumping 3.7% and Deutsche Bank advancing 3%. Industrials showed particular strength, as Continental, Rheinmetall, Siemens, Adidas, and SAP all moved 1-2% higher. Heidelberg Materials and Zalando similarly posted gains.

Across the Channel, French markets reflected the positive mood. Eurofins Scientific surged more than 4%, while Safran added 2.7%. Industrial and transportation names including Airbus, Thales, Schneider Electric, and ArcelorMittal appreciated 1-2%, alongside luxury player Hermes International. Renault stood as a notable laggard, declining nearly 2%, while Kering shed approximately 0.9%.

French Manufacturing Confidence Rebounds Sharply

Data from INSEE provided additional support to sentiment. French manufacturer confidence rebounded substantially in December to 102.0, the highest level in approximately 18 months and well above economist expectations for stability at 98.0. November had registered 98.0. The rebound was particularly pronounced in the other transport equipment segment.

The broader business confidence index, aggregating sentiment from manufacturing, construction, services, retail, and wholesale sectors, strengthened to 99 from 98. Employment sentiment, however, declined modestly to 95 from 96, suggesting some labor market caution beneath the surface confidence gains.

This data confluence—combining dovish BoE action, hawkish ECB signaling, and improving French economic sentiment—created the backdrop for Thursday’s positive close across European equities.