European Markets Rally Ahead of ECB Decisions and Positive Earnings Reports

European stock markets experienced a notable upturn on January 22, 2025, as investors weighed indications regarding the interest rate trajectory from the European Central Bank (ECB). Several ECB officials have suggested a likely interest rate cut in the upcoming week, contributing to the positive market sentiment.

The strong gains led both London and Frankfurt to achieve new historical highs, driven not only by favorable earnings reports but also shifting focus away from concerns regarding tariffs imposed by U.S. President Donald Trump. By 7:10 AM Brasília time, the pan-European Stoxx 600 index was up by 0.64%, reaching 529.35 points. Although the European stock markets opened with only slight fluctuations, they solidified their upward trend throughout the morning.

According to Danske Bank, investor attention is gradually shifting this week from Trump's tariff threats to the monetary policy decisions of major central banks expected next week. At the World Economic Forum in Davos, ECB representatives indicated that a rate cut next week is likely. François Villeroy de Galhau from France projected that rates could drop to around 2% by summer in the Northern Hemisphere, while Klaas Knot from the Netherlands expressed his comfort with potential monetary easing in the forthcoming meetings.

In a more cautious tone, ECB President Christine Lagarde indicated expectations for a gradual reduction in European interest rates. She emphasized that the central bank is not lagging behind in its responses during an interview at Davos, also noting the need for the European Union to prepare for the economic impacts of Trump's trade tariffs. Lagarde is scheduled to speak again in Davos at 12:15 PM Brasília time.

As of 7:20 AM Brasília time, the DAX index in Frankfurt was up by 1.13%, having reached a record high of 21,274.75 points. This increase was further bolstered by the ongoing earnings season; shares of Adidas surged by 6.7% after exceeding profit expectations for the fourth quarter. Meanwhile, SAP shares rose by 1.8%, riding the wave of global enthusiasm for semiconductor stocks following Trump's announcement of a substantial investment package for data centers in the U.S.

The FTSE 100 in London experienced a 0.28% increase, also setting a new historical record at 8,582.79 points, with Intermediate Capital standing out with a 5.5% rise after beating profit expectations in its third-quarter fiscal results for 2024. Other European indices also showed positive movements, with the FTSE MIB in Milan increasing by 0.39%, the PSI 20 in Lisbon rising by 0.01%, and the CAC 40 in Paris gaining 0.75%. However, the IBEX 35 in Madrid saw a slight decrease of 0.07%.