European Markets Drop 1% After Fed's 2025 Rate Outlook, Norway Holds and Sweden Cuts Rates

Bridgette Randall
19 Dec, 2024
London

Stock market indexes in Europe headed lower, tracking losses on Wall Street after the Federal Reserve issued a hawkish rate outlook for 2025. 

Benchmark indexes in Paris, Frankfurt, Milan, and London declined between 1.3% and 1.7% following the Fed's rate decisions. 

The U.S. Federal Reserve lowered the fed funds rate range by 25 basis points as widely anticipated, but it was the Fed's outlook that spooked the markets. 

The rate-setting committee estimated a rate cut of about 50 basis points in 2025, smaller than 100 basis points previously estimated at the end of the third quarter. 

The Fed's revised outlook is tacit acknowledgment that despite eleven rate hikes over 2022 and 2023, inflation is still well anchored, and prices are rising faster than the Fed's target rate of 2%. 

Moreover, most of the decline in interest rates over the last eighteen months is a reflection of sharply lower oil prices and not the Fed's policy effects. 

Investors recalibrated their rate outlook, and stock market indexes fell sharply in New York in Wednesday's trading. 

The Swedish Riksbank lowered its benchmark policy rate by 25 basis points to 2.5%, meeting investor expectations, and the central bank signaled possible additional rate cuts "if the outlook for inflation and economic activity remains unchanged."

The Norges Bank held its reference rate steady at 4.5%, a 16-year high, citing elevated inflation, and the central bank signaled that policymakers are open to possible rate cuts from March. 

However, the central bank noted that the overall and core inflation remain high, but wage growth is likely to slow from 5.2% to 4.5%, and the weakness in the krone could force the monetary policy committee to review "a higher policy rate than currently envisaged may then be required." 

The Swedish krona traded around 11.05, and the Norwegian krone hovered near 11.35 against the U.S. dollar, respectively. 

The Bank of England is expected to hold its benchmark rate at 4.5% later today, following the faster-than-expected rise in inflation and wages in recent months. 

 

EU Passenger Car Registration Eased In November 

Passenger car sales in the European Union struggled to advance in November, reflecting higher interest rates and cost of living. 

Car registrations fell by 1.9% from a year ago to 869,196 units, and France led the way with a sharp decline of 12.7%, followed by Italy with a fall of 10.8%, while the German market stagnated slightly with a rise of 0.5%.

Among the four major economies of the European Union, only Spain recorded positive growth with an increase of 6.4%, the European Automobile Manufacturers' Association reported Thursday. 

For the first eleven months of 2024, passenger car registration edged up only 0.4% to 9.7 million vehicles, largely driven by 5.1% in Spain but 3.7% decrease in France, 0.4% fall in Germany, and 0.2% decrease in Italy. 

Registrations of battery-electric vehicles fell by 9.5% to 130,757 units in November, primarily driven by a significant decrease in registrations in Germany of 21.8% and in France of 24.4%. 

Total market share of battery electric vehicles in the first eleven months to November shrank to 13.4%, 5.4 percentage points lower than a year ago. 

It resulted in a year-to-date market volume 5.4% lower than the same period last year, with the total market share now at 13.4%.

 

Europe Indexes and Yields

The DAX index decreased by 1.3% to 19,989.92; the CAC-40 index fell by 1.7% to 7,262.49; and the FTSE 100 index inched lower by 1.4% to 8,087.72.

The yield on 10-year German bonds edged higher to 2.29%, French bonds inched up to 3.11%, the UK gilts increased to 4.60%, and Italian bonds increased to 3.48%.

The euro edged lower to $1.04; the British pound inched up to $1.25; and the U.S. dollar advanced to 89.58 Swiss cents.

Brent crude decreased $0.08 to $73.30 a barrel, and the Dutch TTF natural gas rose by €0.01 to €41.11 per MWh. 

 

Europe Stock Movers

Skanska AB declined 1.3% to SEK 231.0 after the Swedish construction company divested its multifamily rental company, C. F. Mollers Have, in Denmark. 

Stellantis NV decreased 1.3% to €12.57 after the Italian vehicle maker reported a decline in sales in November. 

Serco Group plc rose 7.5% to 149.10 pence after the security services provider estimated full-year revenue of £4.8 billion, reiterating its previous guidance. 

SoftwareOne Holding AG jumped 10.9% to CHF 6.50 after the Swiss software company announced a deal to acquire Crayon Group Holding. 

Douglas AG declined 2% to €19.25, despite the German cosmetic company reporting a turnaround to net profit in the fiscal fourth quarter.