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European Stock Indexes Hit Record Closes After ECB Softens Inflation Forecasts

European stocks and bonds rose after the eurozone’s central bank cut its inflation forecasts, prompting optimism that the fight against price pressures is progressing and interest rates could soon be lowered.

Tweet on EU’s stock fluctuation

Tullet Prebon chart

The Stoxx Europe 600 index accelerated gains to close 1% higher at a new record of 503.16. The CAC 40 and the DAX, the benchmark indexes of France and Germany respectively, ended at all-time highs.

The benchmark German 10-year bund yield dropped to the lowest level in over a month. Yields on equivalent bonds in Italy, France and Spain also fell.

European Central Bank officials now project that inflation will average 2.3% this year. At the end of 2023, the forecast was for 2.7%.

Next year, inflation is expected to average 2%, the ECB’s target level. The previous forecast was for 2.3%.

“That should give them [the ECB] reason to say that inflation is expected to be at target in the medium term,” said Peter Schaffrik, a macro strategist at RBC Capital Markets. “That’s the reason the market is taking this positively.”

Investors adjusted their expectations for the ECB’s policy-rate path, pricing in a higher probability of rate cuts in the second half of 2024.


Source: Tullet Prebon
Image: Frankfurt Boerse