Global Markets React to Economic Data and Political Developments
Defence Stocks Lead European Shares Higher
A surge in defence stocks propelled European shares upward on Wednesday, defying the downward trend in Asia and the US overnight. The STOXX 600 index rose 0.3% to its highest level since mid-December, driven by US President-elect Donald Trump’s call for increased defence spending from NATO allies.
Auto and Wind Energy Stocks Experience Volatility
Meanwhile, auto stocks experienced a rollercoaster ride on Monday following a report that tariffs would be less extensive than expected, only to be denied by Trump. European wind energy stocks also took a hit on Wednesday after Trump announced plans to restrict wind turbine construction during his second term.
US Economic Data Takes Centre Stage
The growth and inflation outlook in the US remains the primary driver of global markets, influencing interest rates and borrowing costs worldwide. Tuesday’s data revealed an unexpected increase in US job openings and an acceleration in the service sector, suggesting the Federal Reserve may not rush to cut rates.
Interest Rates and Currency Markets
Benchmark 10-year Treasury yields surged 7 basis points to 4.699%, their highest level since April, before retreating slightly to 4.68%. The stronger dollar, boosted by higher US yields, put an end to the brief rebound in European currencies seen earlier in the week. The euro fell 0.25% to $1.0314, nearing its lowest level in over a year.
Central Banks’ Diverging Paths
While the Federal Reserve is expected to make limited rate cuts, the European Central Bank is anticipated to implement deeper rate cuts, with traders pricing in around 100 basis points of easing this year. The Japanese yen, meanwhile, remained steady after touching a seven-month low on Tuesday.
Asian Markets Struggle
Asian stocks struggled earlier in the day, with MSCI’s broadest index of Asia-Pacific shares outside Japan dropping 0.57%. Chinese markets were particularly volatile, with onshore bluechips and Hong Kong stocks initially falling 1.7% before rebounding to close only slightly in negative territory.
Commodities See Gains
Oil prices rose due to reduced supply from Russia and OPEC members, with Brent crude up 0.67% at $77.57 per barrel and US West Texas Intermediate crude 0.96% higher at $74.95 a barrel.
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