European Stock Markets Open Higher as Traders Bet on Central Bank Rate Cuts in 2024
European stock markets opened on a positive note on Tuesday, with traders anticipating rate cuts by central banks in 2024. Additionally, oil prices gained momentum after a naval clash in the Red Sea. However, Chinese stocks were weighed down by mixed economic data.
Global stock markets experienced an overall rise in 2023, particularly in the last two months of the year, while bond yields fell. This positive market sentiment continued into the new year as traders returned from their end-of-year holidays.
In early European trading, the pan-European STOXX 600 reached its highest level in nearly two years, rising 0.5 percent to 0829 GMT. Eurozone bank stocks also rose to their highest level since 2018. The FTSE 100 in London increased by 0.2 percent, and Germany’s DAX rose by 0.8 percent.
The MSCI World Equity index remained steady, with a slight decrease of less than 0.1 percent.
Nordea chief analyst Jan von Gerich expressed optimism about the current rally, stating that there is a belief that monetary easing is on the horizon. However, he also acknowledged the potential downside risk for stocks.
Chinese assets faced downward pressure during Asian trading due to subdued business confidence for 2024. Weak demand, a property downturn, geopolitical factors, and cautious consumers all contributed to the challenges faced by China’s manufacturing sector in 2023. As a result, China’s onshore blue chip index fell by 1.3 percent, and Hong Kong’s Hang Seng index dropped by 1.5 percent.
The U.S. dollar index remained relatively stable, increasing by approximately 0.1 percent to 101.44. Last year, the dollar experienced a decline of around 2 percent due to expectations of rate cuts in the United States.
The U.S. 10-year Treasury yield, which saw overall gains in 2023, rose to 3.9425 percent.
Market attention is now focused on upcoming economic data, including the U.S. non-farm payrolls report on Friday, which could provide insights into the next move by the U.S. Federal Reserve. Additionally, minutes from the December Fed meeting are expected to shed light on central bankers’ thoughts regarding rate cuts.
During its December policy meeting, the Fed surprised markets with a dovish tone and projected 75 basis points in rate reductions for 2024. On the other hand, major central banks such as the European Central Bank (ECB) and the Bank of England (BoE) have indicated their intention to maintain higher rates for a longer period.
In Europe, flash inflation figures for the eurozone are set to be released on Friday, which analysts at RBC Capital Markets believe will be a significant data point ahead of the January ECB meeting. Analysts noted that any substantial increase in inflation would be a significant surprise.
The euro against the dollar experienced a slight decline of around 0.1 percent, reaching $1.10315.
Eurozone government bond yields increased, with the benchmark 10-year German yield rising by 8 basis points to 2.106 percent. Survey data revealed that German manufacturing activity continued to contract in December. However, expectations for future business turned positive for the first time since April.
Oil prices saw an upward trend due to escalating tensions in the Red Sea and expectations of strong demand from China, where investors anticipate fresh stimulus measures. A recent attack by Iran-backed Houthi gunmen on a Maersk container vessel in the Red Sea, repelled by U.S. helicopters, has raised concerns about the Israel-Gaza conflict potentially evolving into a wider regional conflict that could disrupt oil transport routes.
Brent crude increased by 1.8 percent to $78.43 a barrel, while U.S. West Texas Intermediate crude reached $72.85 a barrel, up 1.7 percent.
The head of energy firm E.ON warned that instability in the Middle East could lead to a surge in energy prices.
