European Stocks Fall After Best Quarter
European stock markets closed lower on Wednesday (July 1st), but managed to pull away from session lows after policymakers at the European Central Bank's annual forum signaled they would not rush to raise interest rates.
The Stoxx Europe 600 Index fell 0.4% at the close. The benchmark European index had previously fallen as much as 0.7%, before paring some losses following comments from Federal Reserve Chairman Kevin Warsh in Sintra, Portugal.
Warsh said price risks had eased in recent weeks. However, he continued to emphasize the Fed's independence in determining policy direction and reiterated the US central bank's commitment to bringing inflation back to its 2% target.
These comments helped ease some market concerns about the risk of overly aggressive interest rate hikes. However, investors remained cautious as the Fed has yet to provide a clear signal regarding its next policy direction, especially ahead of US employment data.
From the European side, ECB Governing Council member Martin Kocher said the next policy decision will be between two options: raising interest rates again or holding them steady. This statement indicates that the ECB still has room for tightening, but is unwilling to rush into new measures.
Previously, data showed that eurozone inflation had eased more than expected. This decline in inflation reduces the urgency for the ECB to immediately raise interest rates. Florian Ielpo of Lombard Odier Investment Managers believes this situation provides a positive combination for the European market, supporting corporate profits and lowering interest rate pressure.
Sectorally, automotive and media stocks were the main market drivers. Meanwhile, utilities, technology, and energy sectors were the biggest drags. Energy stocks were pressured as oil prices fell to near US$71 per barrel, amid hopes that US-Iran talks could ease supply risks from the Middle East.
In terms of quarterly performance, the Stoxx Europe 600 just completed its best three-month gain since late 2020. The rally was supported by optimism about artificial intelligence, falling energy prices, and improving corporate earnings expectations.
Earnings expectations are also a key factor for investors. Deutsche Bank strategists expect full-year earnings revisions to point to growth of around 14% for companies in the Stoxx 600 index this year. This has helped bolster investor interest in European stocks, even as valuations and interest rate risks remain concerns.
In individual stock movements, Galderma Group fell 2.7% after one of its therapies was rejected by the US Food and Drug Administration. Conversely, Rheinmetall AG rose 6.1%, along with the European defense sector, after the UK's long-awaited defense investment plan included an additional £15 billion to strengthen the British military.
Overall, Wednesday's decline in European stocks appears more like consolidation after a strong quarterly rally. As long as inflation continues to decline and central banks are in no rush to raise interest rates, European markets still have a chance to find support. However, investors should still pay close attention to US employment data, the direction of oil prices, and developments in US-Iran diplomacy. (arl)
Source: Newsmaker.id
