Financial backers exhibit caution - German DAX descends, U.S. dollar momentarily increases in value.
In a shift of economic winds, European stock exchanges saw a slight dip in investor confidence on Thursday, following the US interest rate cut announcement. By midday, the Dax stood at 20,041 points, a 1% drop from the previous day's close, with the Euro Stoxx 50 Index mirroring this trend, trading at 4,887 points, down 1.4%.
Although the US Federal Reserve lowered interest rates as anticipated, they also hinted at a more gradual easing of monetary policy for 2025. With the central bank led by Fed Chairman Jerome Powell deciding on a quarter-point rate cut to the current range of 4.25% to 4.50%, they now forecast only two more quarter-point rate cuts by the end of 2025, half a percentage point less than their September predictions.
Speculation about the Federal Reserve's projected slower pace of easing in 2025 has stirred market participants, who believe this is a response to potential inflationary effects caused by import tariffs introduced by the new US President, Donald Trump. The dollar benefited from these rate expectations, momentarily strengthening against the euro, reaching $1.0345 before touching its November 22 high of $1.0335. Many currency traders predict that the dollar could achieve parity with the euro due to the expected protectionist US economic policy, currently trading at $1.0409, up 0.6%.
This dollar strength has fostered issues on commodity markets, particularly for copper and oil. Copper prices declined by up to 1.4% to $8,900 per tonne, while the dollar index moved close to its recent two-year high of 108.269 points, reaching 107.90 points. The purchase of dollar-denominated commodities becomes pricier from other currencies' perspectives, potentially leading to reduced demand. Oil prices also experienced a brief dip, causing concern among investors that fewer rate cuts could hinder economic growth and reduce oil demand. However, oil prices rebounded, returning to the previous day's level by midday, at $73.35 per barrel of Brent crude.
The European stock market presents a complex landscape, influenced by a myriad of factors such as economic developments, global policy changes, and geopolitical tensions. Despite European equities moving closer to fair value, offering a better risk-reward profile compared to the US, a cautious broader environment persists due to ongoing trade and geopolitical concerns. Meanwhile, certain sectors, such as defense and utilities, are thriving due to increased government spending and regulatory advantages. The defense sector, in particular, has seen notable growth due to geopolitical events.
All in all, the European stock market presents a combination of chances and challenges. While European equities appear relatively attractive compared to US counterparts, the overall economic climate remains tentative due to trade and geopolitical worries [1][3][4]. Keep this nuanced perspective in mind as you navigate the European stock market.
- The US Federal Reserve's softened stance on interest rate hikes in 2025, with a projected slowdown from their previous forecast, has led to speculation and fear among investors, potentially influencing the finance and investing landscape.
- As a result of the US Federal Reserve's decision to hint at a more gradual easing of monetary policy, the dollar has momentarily strengthened, making dollar-denominated commodities pricier and potentially reducing demand, such as copper and oil.
- Despite European equities appearing relatively attractive compared to US counterparts, the European stock market remains in a cautious environment due to ongoing trade and geopolitical concerns, which may impact business decisions.
- The defense sector within the European stock market, specifically, has seen growth due to geopolitical events, making it a promising area for investors to consider amidst the complex and uncertain economic climate.
