European Markets Cool on ECB Move, Wall Street Eyes Inflation
European Markets Tread Water as ECB cuts Rates, Wall Street Dips on Inflation Concerns
European markets closed largely unchanged Thursday despite the European Central Bank (ECB) lowering interest rates, while Wall Street ended the day in the red after a higher-than-expected U.S. producer price index (PPI) fueled inflation worries.
The Paris bourse barely budged, closing down a negligible 0.03%,while London gained 0.12%, Frankfurt rose 0.13%, and Milan advanced 0.36%. Zurich’s SMI index climbed 0.29%.
Despite “gloomier prospects for Europe,” the ECB “continued to reduce its interest rates as expected,” noted Nicolas forest, investment manager at Candriam.
The ECB trimmed its key interest rates by 0.25 percentage points, bringing its deposit rate, a benchmark for lending conditions in the economy, down to 3.0%.
The central bank now projects eurozone GDP growth at 0.7% in 2024, down from a previous forecast of 0.8%, followed by 1.1% in 2025 and 1.4% in 2026.
ECB President Christine Lagarde’s comments, highlighting the “loss of momentum” in the eurozone economy due to a contracting manufacturing sector and sluggish service growth, prompted investors to reassess the trajectory of European interest rates in 2025, according to Gordon Shannon, portfolio manager at TwentyFour Asset Management.
Lagarde also emphasized the risk of “increased frictions in global trade,” which could weigh on eurozone growth.
“If economic data remains fragile in Europe” against a backdrop of a “performing” U.S. economy, “markets will certainly anticipate larger rate cuts” from the ECB, predicted Andrea Tueni, head of market activities at Saxo Banque.
In the bond market, the yield on German 10-year government bonds edged up to 2.17%, compared to 2.13% at Wednesday’s close. The equivalent Italian bond surged to 3.35%, up from 3.19%.
U.S. Stocks React to Inflation Data
U.S.markets reacted to the release of the PPI, which showed wholesale prices rising 3% year-on-year, up from 2.6% in October.
“The consumer price index released earlier Thursday morning came in slightly higher than expected, and the market is trying to digest this news,” commented Art Hogan, analyst at B. Riley Wealth Management.
“the CPI was a bit higher than anticipated,” echoed Sam Burns of Mill Street Research.
This increase is unlikely to “change the federal Reserve’s intention to reduce rates again next week,” he added.
Most market participants expect the Fed to cut rates by a quarter percentage point at the conclusion of its meeting on December 17-18, according to CME Group’s assessment.
“Stocks have risen considerably lately, so it’s understandable to see a slight pullback today,” Burns suggested, attributing Thursday’s decline to “profit-taking.”
adobe Disappoints, Carl Zeiss Meditec Struggles
Software giant Adobe plunged 13.69% in New York trading after announcing forecasts that fell short of investor expectations, despite strong quarterly results.
Medical technology specialist Carl Zeiss Meditec tumbled 11.70% in Frankfurt after reporting a sharp decline in earnings for the fiscal year and projecting limited improvement in the near term.
Oil Prices Face Headwinds
Oil prices ended the day slightly lower after an initial rally, weighed down by pessimistic demand forecasts and President Trump’s desire to lower prices by increasing production.
brent crude for February delivery shed 0.15% to $73.41 per barrel.Its U.S. counterpart, West Texas Intermediate (WTI) for January delivery, lost 0.38% to $70.02 per barrel.
Bitcoin dipped below the $100,000 mark, trading at $99,769 (-1.91%) around 10:00 PM GMT.
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