European Stocks Rise Ahead of Anticipated U.S. Rate Cut

European stocks edged higher on Tuesday, led by gains in financial shares, as markets geared up for the U.S. Federal Reserve’s expected monetary easing cycle. Investors are eyeing a potential outsized rate reduction from the U.S. central bank.

The continent-wide STOXX 600 index climbed 0.6% to 518.16 points by 07:13 GMT, with Britain’s FTSE 100 outperforming its European counterparts, rising by 0.7%. Financials and banking shares drove the gains, with financial stocks rising nearly 1% and banking shares up 0.8%.

Focus on the Federal Reserve’s Rate Decision

Investor sentiment remains cautious as markets await the Federal Reserve’s rate decision on Wednesday. Markets are currently pricing in a 67% chance that the U.S. central bank could cut rates by 50 basis points, setting the stage for a more aggressive easing cycle.

Attention is also turning to key economic data releases. Germany’s sentiment survey, due at 09:00 GMT, is expected to indicate a slight dip in optimism for September. Additionally, U.S. retail sales, set for release at 12:30 GMT, are forecast to show a contraction in August, which could provide further insight into global economic trends.

Several European Central Bank officials, including supervisor Claudia Buch and board members Elizabeth McCaul and Frank Elderson, will also be making speeches later in the day, which could offer additional clues on the ECB’s policy outlook.

Kingfisher and Barry Callebaut Lead Individual Gains

Among individual stocks, Kingfisher (LON: KGF) surged 6.6%, leading the STOXX 600, after the European home improvement retailer raised the lower end of its full-year profit forecast. Shares of Barry Callebaut also rose 6.2% after Barclays upgraded the stock to “overweight” from “underweight.”

As markets anticipate crucial economic updates and central bank decisions, European stocks appear to be cautiously optimistic, with financials leading the way.