FTSE hits five-week high as traders optimistic about softening monetary policy

European stock markets pushed higher on Tuesday as traders' optimism about softening monetary policy offset falling UK house prices.

In London, the FTSE 100 (^FTSE) rose 1.3% by the end of the day, touching to its highest point since late September during the session, as huge profits for BP (BP.L) helped to boost stocks. Energy and oil stocks led the gains.

Meanwhile the French CAC (^FCHI) advanced 0.8% and the DAX (^GDAXI) was 0.5% higher in Germany.

It came as UK house prices fell for the first time in 15 months, after Kwasi Kwarteng’s mini-budget fiasco, with the average value of a home dropping 0.9% to £268,282 in October.

According to figures from Nationwide, this marked the first monthly decline since July 2021, and the biggest since the start of the pandemic.

Robert Gardner, Nationwide’s chief economist, blamed the surge in market interest rates after Kwasi Kwarteng’s announcement in September.

“October’s fall could likely be a sign of things to come. Although mortgage rates have retreated from the highs seen just after the mini-budget, they’re still elevated compared to early-mid September,” Martin Beck, chief economic advisor to the EY ITEM Club, said.

“Cost of living pressures remain challenging, and face being exacerbated by tax rises and public spending restraint in November’s Autumn statement, and consumer confidence is notably depressed.”

Watch: Will UK house prices ever fall?

Meanwhile on Monday, EU inflation surged to its highest ever level, rising from 9.9% in September to 10.7% in October, while core prices rose to 5%.

Over on Wall Street, investors have turned their focus to the Federal Reserve's policy meeting this week for hints on what’s to come.

The S&P 500 (^GSPC) dipped 0.5% and the tech-heavy Nasdaq (^IXIC) fell 0.8% by the time of the European close. Meanwhile, the Dow Jones (^DJI) edged 0.4% lower.

The US central bank is all but certain to raise interest rates by another 75 basis points on Wednesday, but investors will be looking for signals that it may be considering a deceleration in interest rate hikes in the future.

“US markets finished October very much on the back foot, although that didn’t stop the Dow from posting its best monthly gain since 1976, reversing the losses seen in September, and almost all of those in August,” Michael Hewson of CMC Markets said.

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“While on the face of it the Dow’s performance is impressive, it matters slightly less when compared to the Nasdaq 100 and S&P 500 who although they finished the month higher, they didn’t come anywhere close to reversing their September losses.

“With investors favouring the big blue-chip beasts of the Dow it would appear that despite the rebound seen in October, markets continue to remain very risk averse when it comes to specific parts of the US market.”

It also came as the number of US job vacancies has rebounded in September. According to the Bureau for Labour Statistics, there were 10.7 million job openings during the month, a rise after sharp drop in August.

The 437,000 increase in vacancies surprised economists, who had expected a drop to around 10 million openings.

Asian shares rose overnight, despite mild losses from Wall Street. The Hang Seng (^HSI) surged 5.2% in Hong Kong, while the Nikkei (^N225) climbed 0.3% in Tokyo, and the Shanghai Composite (000001.SS) was 2.6% higher.

Australian shares were also up on the day with the mining index leading the gains. It came as the Reserve Bank of Australia brought in a seventh consecutive rate rise, with a hike of 0.25%, taking borrowing costs up to levels not seen in almost a decade. It signalled that more increases are on the way.

Traders will also have their eyes on Chinese economic activity data later in the week.

Watch: How does inflation affect interest rates?