LONDON: Eurozone stock markets rallied Wednesday as a further drop in business activity across the single-currency bloc stoked hopes that the European Central Bank would cut interest rates this year.
Business activity fell in January for the eighth straight month, but the rate of decline slowed from December, a key survey showed.
The HCOB flash eurozone purchasing managers’ index (PMI) published by S&P Global registered a figure of 47.9 in January from 47.6 in December. A figure below 50 indicates contraction.
European shares dip amid caution ahead of ECB policy decision
In France, manufacturing and services sectors recorded steepening contractions as output fell at the sharpest rate since September. Business activity also slumped at a faster rate in Germany, the bloc’s biggest economy.
“A bad news story is often more powerful than a good news story,” noted Kathleen Brooks, research director at trading firm XTB.
“If the eurozone economy is facing a recession this year, as many expect, then the ECB can ride to the rescue, and they have room to cut interest rates.”
London’s benchmark FTSE 100 index also rose, but less aggressively than in the neighbouring eurozone approaching the mid-way mark.
UK business activity hit a seven-month high in January as a stronger service sector helped counteract supply disruption in the Red Sea.
S&P Global’s flash UK PMI index rose to 52.5 in January from 52.1 in December. However, manufacturers saw production slump.