Rate Cut Hopes Dominate European Stock Markets Sentiment

Bridgette Randall
27 Dec, 2023
Frankfurt

Stock market indexes in Europe struggled to gain traction, and investors debated the rate path and economic outlook for the next year.

Market indexes in Frankfurt, Paris, and London edged up after investors returned from a four-day holiday, and in the absence of domestic news, focus shifted to international markets.

Despite the weakening economic backdrop, stock market indexes in Germany are up nearly 19% and in France are up 15% in the year so far.

Stocks powered ahead in the last seven weeks after the European Central Bank held its rates for the first time after the policy meeting on October 26 and extended the rate pause again on December 14.

The European Central Bank is also expected to leave its policy rates on hold on January 25, but investors are hoping that policymakers will lower rates at the end of the subsequent meeting on March 7.

Market indexes in the U.S. advanced 0.5% in Tuesday's trading, and investors bid up stocks in the hopes of a rate cut as early as March.

The Federal Reserve is widely anticipated to leave rates steady after the first policy meeting in 2024 at the end of January.

 

Europe Indexes and Yields

The DAX index increased 0.04% to 16,714.72, the CAC-40 index advanced 0.2% to 7,582.97, and the FTSE 100 index inched higher by 0.4% to 7,731.84.

The yield on 10-year German bonds decreased to 1.93%; French bonds inched lower to 2.44%; the UK gilts inched lower to 3.47%; and Italian bonds inched lower to 3.50%.

The euro traded higher to $1.10, the British pound inched higher to $1.27, and the U.S. dollar eased to 85.26 Swiss cents.

Brent crude decreased $0.27 to $80.81 a barrel, and the Dutch TTF natural gas increased by €2.65 to €36.85 per MWh.

 

Europe Stock Movers

Banks traded mixed, and investors debated a possible rate cut as early as 2024.

Deutsche Bank edged down 0.2% to €12.35, Societe Generale advanced 0.7% to €24.25, UniCredit declined 0.1% to €24.39, and Barclays jumped 1.4% to 153.86 pence.

Energy companies were in focus after uncertainties rose in the Red Sea and tensions remained high between the U.S., Iran, and Israel.

The U.S. military targeted strikes at installations operated by Iran-backed non-state groups following the Houthi rebel attack on ships in the Red Sea.

The prospect of a wider war involving Iran-backed Hamas-controlled groups and U.S.-backed Israel also kept investors on edge.

BP plc increased 0.4% to 468.92 pence, Shell plc added 0.2% to 2,572.50 pence, and TotalEnergies advanced 0.7% to €62.73.

Automakers traded generally higher in the hopes that lower interest rates in 2024 will spur higher demand for vehicles.

Mercedes Benz decreased 0.1% to €62.78, Volkswagen dropped 0.6% to €111.96, Renault Group declined 0.4% to €37.55, but Stellantis advanced 0.1% to €21.26.