European Markets Surge Following Fed’s Rate Cut Signal


European Markets Surge Following Fed’s Rate Cut Signal

1. European Stock Markets Rally

European stock markets experienced significant gains on Thursday, driven by the U.S. Federal Reserve’s indication of impending rate cuts in the coming year. This surge preceded policy meetings scheduled for the day by the European Central Bank (ECB) and the Bank of England (BOE).

At 03:10 ET (08:10 GMT), Germany’s DAX index traded 1.3% higher, France’s CAC 40 rose 1.4%, and the U.K.’s FTSE 100 recorded a 1.7% increase.

2. Follow-Up to the Fed’s Signal

European equities mirrored the positive momentum seen on Wall Street, where the Dow Jones Industrial Average closed at a record high. Similar gains were observed in Asian markets overnight. The Federal Reserve, concluding its two-day policy meeting on Wednesday, maintained interest rates as expected but signaled at least three rate cuts in the next year. This announcement led to a drop in the 10-year Treasury yield below 4%, a level not seen in four months.

3. Central Bank Meetings in Focus

The European Central Bank, the Bank of England, the Swiss National Bank, and Norges Bank are all set to conduct policy meetings on Thursday. Market expectations lean towards steady outcomes. The ECB meeting is particularly noteworthy due to the sharp slowdown in inflation in the region. ECB’s leading hawk, Isabel Schnabel, has recently suggested ruling out further rate hikes.

Investment bank Goldman Sachs anticipates a 25 basis points interest rate cut by the ECB in each meeting starting April next year, projecting the benchmark deposit rate to reach 2.25% by early 2025, down from the current 4%.

4. EU Summit on Ukraine

Apart from central bank meetings, investors are keeping a close watch on the summit of European Union leaders in Brussels. The summit aims to provide support for Ukraine, potentially initiating EU membership talks and offering €50 billion in financial aid, subject to overcoming opposition from Hungarian Prime Minister Viktor Orban. This gathering holds significant importance for Ukraine amid ongoing challenges and uncertainties, including hurdles in securing a $60 billion aid package from the Biden administration.

5. Crude Oil Prices Respond to Draw in Inventories

Oil prices rose on Thursday following a larger-than-expected weekly draw from U.S. crude storage, coupled with a boost from the dovish stance of the Federal Reserve.

At 03:10 ET, U.S. crude futures traded 0.8% higher at $70.03 a barrel, while the Brent contract climbed 0.9% to $74.89 a barrel. The Energy Information Administration reported a significant 4.3 million barrel decline in U.S. oil inventories for the week ending Dec. 8, surpassing expectations. However, concerns arise as this draw follows consecutive weeks of robust builds, suggesting a potential decline in winter demand.

6. Gold Prices and Currency Movements

Gold futures recorded a substantial 2.7% increase, reaching $2,050.55/oz, driven by the dovish stance of the Federal Reserve. In currency markets, the EUR/USD pair traded 0.1% higher at 1.0888. These movements reflect the impact of the Fed’s signaling on various asset classes.

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