European Markets Rise Amid ECB's Interest Rate Outlook for 2025

European stock markets experienced gains on Wednesday as investors assessed local economic data and remarks from European Central Bank (ECB) officials regarding interest rate cuts anticipated in 2025. The markets are also closely monitoring signals related to the Federal Reserve's monetary policy and the commencement of earnings season in the United States.

By 7:07 AM Brasília time, the pan-European Stoxx 600 index was up by 0.51%, reaching 511.27 points. In Lisbon, the PSI 20 index rose by 0.94%, while Madrid's IBEX 35 saw an increase of 0.27%. Frankfurt's DAX climbed by 0.62%, and Milan's FTSE MIB was up 0.59%. London's FTSE also gained 0.78%, following a report that the UK consumer price index (CPI) slowed to an annual rate of 2.5% in December. Analysts from the Wall Street Journal noted that this decline enhances the likelihood of interest rate cuts by the Bank of England (BoE) in 2025.

Across Europe, there is a prevailing sentiment favoring further reductions in interest rates. Luis de Guindos, the ECB's Vice-President, indicated today that the focus of monetary policy has shifted from combating high inflation to addressing the sluggish economic growth within the eurozone, suggesting a clear trajectory toward easing. According to Dow Jones Newswires, ECB official François Villeroy de Galhau anticipates that rates will decrease to a neutral level by summer. However, Philip Lane, the ECB's Chief Economist, expressed caution, pointing out that the inflation rate in the services sector, hovering around 4%, remains a concern for the region.

These comments have overshadowed the recent announcement of a 0.2% decline in Germany's GDP for 2024, marking the second consecutive year of contraction for Europe's largest economy. Conversely, the eurozone's industrial production was reported to have increased by 0.2% in November compared to October, aligning with expectations.

European investors are also looking forward to the release of the US CPI data, along with remarks from Federal Reserve officials and the Fed's Beige Book, as they seek insights into the future direction of US monetary policy. This week, major US banks are set to kick off the earnings season, which is expected to draw significant attention from market participants.

In Paris, uncertainties regarding Prime Minister François Bayrou's ability to garner support from the left to pass the budget seem to be limiting the progress of the CAC index, which was up 0.30% after fluctuating near stability overnight.