ECB's expected rate cuts could support European equities - Citi

Investing.com -- The pan-European Stoxx 600 should see "some additional upside" until the end of 2024 thanks in part to much-anticipated interest rate reductions by the European Central Bank later this week, according to analysts at Citi.

Persuaded by signs of moderating inflation in Europe, policymakers at the ECB have all but promised to ratchet down borrowing costs at their gathering on Thursday.

ECB President Christine Lagarde said last month she was "really confident" price gains in the euro zone currency area were "under control" as the impact of an energy crisis and supply chain disruptions wanes. Chief Economist Philip Lane also told the Financial Times that "barring major surprises" the ECB had enough evidence to "remove the top level of restriction."

Investors are wagering the ECB will bring down its benchmark deposite rate by 25 basis points from its current level -- an all-time high of 4%. Bets are now focused on the ECB's plans beyond this month, with market observers noting it remains uncertain if the central bank will continue to slash rates.

In a note to clients, the analysts at Citi said the region's equities "typically" receive some support from rate cuts, adding that they will likely boosted by an "inflecting earnings picture" as well.

They also argued that ECB interest rates should "settle" around 2%, well above where they have been for much of the past decade. This return to an environment of elevated policy rates and higher average inflation, they said, could bolster "European fundamentals and serve as a longer-term tailwind."

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