European shares hit fresh three-month highs after signs of Fed slowdown

European stocks hit fresh three-month highs on Thursday after minutes from the Federal Reserve’s November meeting signaled a slowdown in the pace of interest rate hikes, with investors looking for fresh cues from the European Central Bank (ECB).

The pan-European STOXX 600 index rose 0.3 percent to its strongest level since Aug. 19, although trading volumes were light due to a U.S. market holiday for Thanksgiving.

Wall Street ended with solid gains on Wednesday after the U.S. central bank’s meeting minutes showed a “substantial majority” of policymakers agreed it would “likely soon be appropriate” to slow the pace of interest rate hikes.

“It was in line with expectations around signalling smaller rate hikes, however, also underscoring that the terminal rate will be higher,” said Karim Chedid, head of investment strategy for iShares EMEA at BlackRock.

“What is different for the ECB is that the recession we’re expecting for Europe is going to be more protracted. It means that the ECB may not be able to go as far as the Fed and they will have to eventually start cutting rates sooner than the Fed.”

The European Central Bank will release at 1230 GMT the minutes of its October meeting, where it raised interest rates by 75 basis points but said “substantial” progress had already been made in its bid to fight off a historic surge in inflation.

Adding to the positive mood on Thursday, a survey by the Ifo Institute showed that German business morale rose more than expected in November and pessimism heading into the coming months eased considerably.

The benchmark STOXX 600 has rallied about 15 percent from its Sept. 29 closing lows as an upbeat earnings season and hopes of smaller interest rate hikes by the Fed overshadowed worries about a potential recession in Europe.

The rate-sensitive real estate sector was the top performer in Europe, up 2.7 percent, as the German government bond yields fell to their lowest in six weeks.

Immofinanz jumped 9 percent after the Austrian real estate firm reported strong nine-months results and raised its 2022 forecast for funds from operations.

Remy Cointreau slipped 1.8 percent after the maker of Remy Martin cognac said the second-half would reflect a return to normal consumption trends after two years of “exceptional growth”.

Adevinta, the world’s largest classified ads company, jumped 8.6 percent after it confirmed full-year 2022 targets.