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ECB cuts rates as euro area stagnates

The European Central Bank (ECB) cut its key interest rate by 25 basis points on Thursday, aiming to combat a stagnant euro-area economy. European and US stock markets closed higher on Thursday, buoyed by strong corporate earnings and positive US GDP data. In Asia, markets were mixed on Friday, with Tokyo stocks gaining alongside rising inflation data, while Korean equities fell after reopening from a holiday break. Friday, market participants will scrutinise Personal Consumption Expenditures (PCE) data for clues as to where US inflation is headed.

Date
Author
Shane Strowmatt, LGT
Reading time
5 minutes

ECB tower
© Shutterstock

The ECB cut its key interest rate by 25 basis points to 2.75% on Thursday, marking its fifth reduction since June last year. The move comes as the ECB grapples with rising inflation, which hit 2.4% in December, and a stagnant euro-area economy. ECB President Christine Lagarde warned that the euro-area economy is likely to remain weak in the near term. Markets are trying to judge how comfortable the ECB is with deviating from the Fed’s monetary after the Fed left rates unchanged on Wednesday.

Euro-area GDP stagnates in fourth quarter

Gross domestic product (GDP) in the euro area remained unchanged in the fourth quarter of 2024, while the European Union (EU) saw a modest increase of 0.1%, according to Eurostat's preliminary flash estimate, released on Thursday. This follows a 0.4% growth in both regions in the third quarter. Annually, GDP grew by 0.9% in the euro area and by 1.1% in the EU. Notably, the bloc’s largest economies, Germany and France, both contracted during the quarter by 0.2% and 0.1%, respectively.

European stock indices closed higher on Thursday, driven by strong corporate earnings. The Euro Stoxx 50 climbed 1.1%, while Germany’s DAX and France’s CAC 40 gained 0.4% and 0.9%, respectively.

US stocks rise on strong earnings and GDP data

US stock markets rebounded on Thursday, with the Dow Jones Industrial Average closing 0.4% higher at 44,882.13 points, driven by strong earnings reports and positive GDP data. The S&P 500 increased by 0.5% to 6071.17 points, while the Nasdaq 100 gained 0.5% to 21,508.12 points. Notable performers included Meta, which rose 1.6% on robust advertising revenue, and Tesla, which climbed 2.9% despite missing quarterly expectations but forecasting strong 2025 growth. Conversely, Microsoft shares fell by 6.2% due to slower cloud computing growth. Apple stock was trading 3% higher in after-hour trading after the company released earnings figures after the bell that showed its gross margin reached a record 46.9% in the fiscal first quarter. Intel likewise gained 3.7% in extended trading following better-than-expected earnings and revenue for the fourth quarter.

US GDP growth slows in fourth quarter

US gross domestic product grew at an annualised rate of 2.3% in the fourth quarter, down from 3.1% in the previous quarter, according to the Bureau of Economic Analysis on Thursday. Despite the slowdown, consumer spending remained strong, growing at 4.2%, up from 3.7% in the third quarter. The market had predicted a higher GDP growth rate of 2.6%. Meanwhile, initial claims for US state unemployment benefits dropped by 16,000 to 207,000 for the week ending January 25, according to the Labour Department on Thursday. This decline exceeded market expectations, indicating low layoffs despite a challenging job market.

Asian stocks mixed as Korean markets reopen

Stocks in the Asia-Pacific region were trading mixed on Friday. Japan’s Nikkei 225 was trading 0.5% higher, after core inflation in Tokyo rose to 2.5% in January, marking the fastest annual increase in nearly a year and surpassing the Bank of Japan's 2% target. Tokyo Core CPI, excluding fresh food and fuel, increased by 1.9% year-on-year, indicating persistent cost-push pressures. Tokyo inflation is considered indicative of national inflation. Meanwhile, retail sales in Japan were 3.7% higher in December than in the same month of the previous year. Elsewhere in Asia, Korea’s Kospi fell 0.9% after reopening from a four-day pause. Australia’s S&P/ASX 200 was up 0.5%. Markets in mainland China and Hong Kong were still closed for the Lunar New Year holiday.

Swiss trade surplus reaches CHF 15.1 billion in Q4

Switzerland's trade surplus rose to CHF 15.1 billion in the fourth quarter, according to a report released by the Federal Customs Administration on Thursday. Exports increased by 7.3% to CHF 71.1 billion, driven by a significant rise in chemical and pharmaceutical raw materials, while imports grew by 1.6% to CHF 55.9 billion. In December, the trade surplus was CHF 4.3 billion, with exports at CHF 24.3 billion and imports at CHF 19.9 billion. The Swiss Market Index increased by 0.6% on Thursday.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from AbbVie, Chevron, Eaton, ExxonMobil, Hitachi, Novartis, and Samsung. Annual general meetings at Atos and Thyssenkrupp.

Economic data in focus: German retail sales (08:00), Swiss retail sales (08:30), German unemployment rate (09:55), German Consumer Price Index (14:00), US personal consumption expenditures (14:30), Canadian gross domestic product (14:30).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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