European Markets Extend Gains Post-Fed, Despite Central Bank Caution

1. European Stocks Maintain Momentum

European stock markets continued their upward trajectory on Friday, extending the post-Fed rally, despite the more cautious stances from both the European Central Bank (ECB) and the Bank of England (BOE). At 03:05 ET (08:05 GMT), the DAX index in Germany was up by 0.4%, the CAC 40 in France saw a 0.4% increase, and the FTSE 100 in the U.K. rose by 0.2%. The optimism persists even in the face of recent central bank decisions.

2. Fed Optimism Holds Ground

The European Central Bank and the Bank of England maintained their unchanged interest rates, as anticipated, signaling their commitment to tight monetary policies into the next year to tackle lingering inflation concerns. The ECB indicated that policy easing was not discussed during its two-day meeting, the BOE stated that rates would stay high for an “extended period,” and Norway’s central bank even opted to raise rates. This stands in contrast to the Federal Reserve’s recent shift towards potential rate cuts. However, market sentiment remains bullish, driven by hopes that the U.S. economy will smoothly navigate toward a soft landing in the coming year, benefiting global economies.

3. Economic Data Highlights

As the week concludes and the festive season approaches, a significant amount of economic data in Europe is set to guide investor sentiment. French consumer prices for November, reflecting a 0.2% monthly decrease but an annual rise of 3.5%, are reported, along with similar data from Italy. Additionally, December PMI data for France, Germany, the U.K., and the eurozone as a whole are due, offering insights into the possibility of a regional recession as the year concludes.

4. Mixed News from China

China reported positive news as industrial production grew by 6.6% year-on-year in November, surpassing expectations and indicating resilience after the country’s post-COVID economic recovery faced challenges in 2023. However, China experienced further disinflation in November, with business activity remaining weak, and retail sales growing less than expected.

5. H&M Faces Sales Decline

In corporate developments, H&M (ST:HMb) witnessed a 0.4% decline in its stock value after reporting a 4% drop in September-November sales measured in local currencies. This decline represents the most significant slump since Q3 2022. H&M faces tough competition from Zara owner Inditex (BME:ITX), which reported robust sales growth for the nine months through October, including a 15% rise in local-currency sales.

6. Oil Prices Set for Weekly Gain

Oil prices inched higher on Friday, poised for the first weekly gain in two months. The optimism stems from increased confidence in demand growth next year and a weaker dollar. By 03:05 ET, U.S. crude futures traded 0.2% higher at $71.69 a barrel, and the Brent contract rose 0.1% to $76.69 a barrel. Both benchmarks are on track for a 1% weekly gain, breaking a streak of seven consecutive weekly losses. The weakened dollar, following the Federal Reserve’s indication of lower borrowing costs, has bolstered the belief that a stronger U.S. economy will drive crude demand in 2024. The International Energy Agency’s upward revision of its oil demand forecast for 2024 further supports this outlook.

7. Gold Futures and Currency Movements

Gold futures rose by 0.4% to $2,052.05/oz, benefiting from a weaker dollar and increased demand amid expectations of lower interest rates. The EUR/USD currency pair traded 0.1% higher at 1.0997. The dollar’s decline to a four-month low, influenced by the Federal Reserve signaling lower borrowing costs, supported gold prices. Additionally, a weaker dollar made dollar-denominated oil more affordable for foreign purchasers. The overall market dynamics showcase the intricate balance of global factors impacting European markets in the current economic landscape.

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