European shares rally on hopes of smaller Fed hikes, China reopening

European stocks rallied on Friday after U.S. jobs data backed bets the Federal Reserve would deliver smaller rate hikes, with hopes of easing COVID-19 curbs in China boosting mining and luxury stocks.

The STOXX 600 closed 1.8% higher, with basic resources, personal & household goods and automakers leading a broad rally.

Thanks to a largely better-than-expected earnings season and hopes that central banks will slow their pace of monetary policy tightening, the benchmark index marked its fourth straight weekly gain with a 1.5% rise.

Wall Street’s main indexes held steady as a slowing pace of U.S. job growth and rising unemployment rate suggested some loosening in labour market conditions, supporting hopes of a shift towards smaller rate hikes starting December.

“We definitely believe that the Fed will continue with its hiking cycle, although not with the jumbo hikes that we have seen during the last meetings,” said Teeuwe Mevissen, senior market economist at Rabobank.

Furthermore, China is expected to make substantial changes to its “dynamic-zero” COVID-19 policy in coming months and further shorten quarantine requirements for inbound travellers.

Luxury giants including LVMH, Kering, Pernod Ricard and Hermes International , which have a large exposure to China, climbed between 3.7% and 7.1%.

Miners rose 5.3% to post their best day in almost four months as metal prices jumped on speculation over easing COVID-19 curbs in top metal consumer China.

The Euro STOXX volatility index, dropped to an 11-week low, reflecting easing anxiety among investors.

Meanwhile, data so far indicates that the euro zone is heading towards a winter recession. A survey showed euro zone business activity contracted last month at the fastest pace since late 2020 as high inflation and fears of an intensifying energy crisis hit demand.

Among other stocks, Adidas shot up 21.4% to the top of the STOXX 600 after Germany’s manager magazin reported that outgoing Puma chief executive Bjorn Gulden is set to become the new Adidas head.

Manufacturer Andritz surged 10.7% as its quarterly sales and profit rose significantly.

Societe Generale jumped 2.6% after posting a higher-than-expected net income, while shares in Monte dei Paschi di Siena plunged 12.0% after the bank completed a 2.5-billion-euro ($2.4 billion) capital raise.