Market Sentiment Buoyed by Trump-Xi Meeting, ECB Policy Outlook Clouds Optimism
Frankfurt – European markets opened cautiously optimistic Thursday morning, with the German DAX index showing a slight increase as investors reacted to the reported tone of the recent meeting between US President Donald Trump and Chinese President Xi Jinping. The index stood at approximately 24,195 points around 9:30 am, representing a 0.3% rise from the previous day’s close. Leading the gains were Airbus, Adidas and Symrise, while Siemens Energy, Qiagen and Rheinmetall lagged.
The perceived thaw in US-China relations appears to be a significant driver of the positive sentiment. As Thomas Altmann of QC Partners observed, “The meeting between Donald Trump and Xi Jinping seems to have unfolded in a pleasant atmosphere. The positive aspect is that the world’s two largest economies are clearly pursuing a course of reconciliation and moving toward each other”. This signals a potential easing of trade tensions, a persistent drag on global economic growth.
However, this initial optimism is tempered by evolving expectations regarding monetary policy, particularly following comments from the US Federal Reserve. Altmann highlighted a notable shift in market pricing: “Following yesterday’s press conference by Jerome Powell, the probability of an interest rate cut in December is now priced in at only 70%, compared to 90% at the start of the conference”. This recalibration triggered a significant surge in US Treasury yields, marking the largest single-day increase across all maturities since June, suggesting a reassessment of the Fed’s future actions.
The European Central Bank (ECB) is now under scrutiny, with market consensus predicting the retention of current benchmark interest rates. Altmann suggested that “the ECB’s easing cycle may already be coming to an end”. Furthermore, he pointed out that financial markets currently assign only a 40% probability of additional rate cuts by the ECB before the middle of next year, implying a growing conviction that borrowing costs have reached a floor.
From a domestic perspective, investors will be closely monitoring the preliminary inflation rate for October, released today. The anticipated monthly rate of 0.2% falls within the ECB’s target range and is expected to push the annual rate closer to the crucial 2% mark following recent inflationary pressures.
The Euro demonstrated a slight strengthening against the US dollar, trading at $1.1612, reflecting a subdued but consistent recovery. Conversely, oil prices continue to experience downward pressure, with Brent crude trading below $64.33 per barrel – a decrease of 0.9% from the previous day’s closing figure – presenting a potential headwind for energy-dependent sectors.