European shares close at five-month highs after Powell hints at September rate cut

By Twesha Dikshit and Sukriti Gupta

(Reuters) -European shares closed at their highest level in more than five months on Friday after U.S. Federal Reserve Chair Jerome Powell pointed to a possible September interest rate cut in his Jackson Hole Symposium speech.

The pan-European STOXX 600 index closed 0.4% higher, less than 1% away from record highs. The index logged its third week of gains. Most regional bourses also closed in positive territory.

Powell's comments opened the door to a rate cut at the Fed's September 16-17 meeting, but also put heavy weight on jobs and inflation reports that will be received before then.

Traders now put a nearly 90% probability on a Fed rate cut in September, versus about 75% before Powell's remarks.

"The fact that the Fed is now preparing to give the market that 25 basis point rate cut, at least that they were expecting, is creating a lot of euphoria," said Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank.

"Generally when the Fed is dovish, it is positive for the global financial market."

Miners led sectoral gains with a 1.6% advance, tracking rising copper prices that hit a one-week high following Powell's comments. [MET/L]

Consumer facing sectors such as automobiles and travel and leisure stocks followed, up 1.4% and 1.3%, respectively.

On the flip side, insurers fell the most, down 0.6%.

However, UBS said in a note it remains "neutral" on euro zone equities with European markets navigating near-term macro uncertainty, while lowering its earnings growth estimate for the area this year to -3% from 0%. 

Progress on ending the war in Ukraine also stilled with markets awaiting more clarity, after initial optimism from Russia and Ukraine's meetings with the U.S. fizzled out.

"The more time it takes, the more the probability of not progressing towards a durable peace increases and that could weigh on the European markets moving forward," said Ozkardeskaya.

Meanwhile, data on Friday showed the German economy contracted by 0.3% in the second quarter of 2025, more than initially reported.

Boosting the chemicals index, Dulux paints maker AkzoNobel rose 6.8% to the top of the STOXX 600 after activist investor Cevian Capital took a 3% stake, according to a filing by Dutch market regulator AFM. 

Standard Chartered shares gained 4.2% after the bank said it had received a favourable ruling by the U.S. Department of Justice in a long running civil case. 

Shares in Polish banks fell after the finance ministry proposed raising corporate income tax for the sector.

PKO BP and Pekao were the top losers on the STOXX 600, falling 12.2% and 11.2% respectively.

PKO stock logged its steepest one-day fall since February 2022.

(Reporting by Twesha Dikshit, Sruthi Shankar, Sukriti Gupta and Purvi Agarwal in Bengaluru; Editing by Nivedita Bhattacharjee and Devika Syamnath)