At the closing, the Stoxx Europe 600 index fell 0.5%, continuing the year’s drab beginning. Data revealed that Germany’s GDP dropped last year for the first time since the epidemic, with consumer goods and merchants leading the fall. Germany’s 10-year yield reached a one-month high, up around five basis points.
A recession is no longer ruled out, but lingering inflation and geopolitical worries will keep the ECB from cutting interest rates this year, according to Governing Council member Robert Holzmann. He issued the same caution that it is premature to discuss lowering borrowing prices as colleagues such as Chief Economist Philip Lane, Governing Council member Constantinos Herodotu, and President of the European Central Bank Christine Lagarde.
It is predicted by economists that the ECB will make its first of four quarter-point cuts in June, while traders are betting for six quarter-point cuts beginning in April. Symptoms of the area’s economic decline lend credence to their argument: Germany said on Monday that its output had shrunk by 0.3% in the fourth quarter and by the same amount for the entire year 2023. Even still, Bundesbank President Joachim Nagel stated that no action should be taken until the summer and agreed that it is too soon to talk about monetary easing.
Benoit Péloille, chief investment officer at Natixis Wealth Management, stated, “We’re getting to the point where bad economic news translates into good news for equity markets.” Market pricing for up to six quarter-point rate cuts is also present in the US.
Due to a national holiday on Monday, the stock and Treasury cash markets were closed, and US equity-index futures were flat. A dollar index began to rise.
Following the French aircraft manufacturer’s announcement of a decrease in 2023 jet orders, Dassault Aviation SA saw a sharp dip in its share price in Europe. Following the advice of BNP Paribas Exane analysts to avoid investing in Europe’s food delivery market, Delivery Hero SE and Just Eat Takeaway.com NV saw a decline. When Volvo Car AB said on Friday that it was temporarily stopping some production owing to shipping delays brought on the Red Sea assaults, the company’s downturn was furthered.
Despite a Houthi attack on a US-owned commercial vessel, oil fell as lacklustre fundamentals outweighed the chance that US and ally airstrikes might spark a larger conflict and sabotage Middle Eastern oil shipments. Natural gas prices in Europe, however, fell to their lowest point since August, highlighting the region’s accomplishments in stomping out supply since the energy crisis in 2022.
For a third session, the MSCI Asia Pacific share index increased. After the Democratic Progressive Party emerged victorious in the presidential election and the more China-friendly Kuomintang garnered insufficient seats to govern the assembly, stocks in Taiwan rose.
Following the People’s Bank of China’s surprising decision to keep the rate on its one-year policy loans at 2.5% on Monday, anticipation that policymakers may reduce the needed reserve ratio caused China’s CSI 300 Index to fluctuate between gains and losses. Economists had predicted that it will reduce the so-called medium-term lending facility by 10 basis points.
Rate reductions are probably still in the works, but China appears to be relaxing policy more gradually, according to Marvin Chen, an analyst at Bloomberg Intelligence in Hong Kong.
Investors will be watching German and UK inflation data this week, along with additional US profit reports. They will also be watching a wide range of political figures, including Chinese Premier Li Qiang, who is attending the annual WEF. It will also be widely monitored to hear Federal Reserve Governor Christopher Waller’s address, after authorities’ attempt last week to allay any expectations of an impending rate drop.