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Is Europe Hawkish Compared to American Counterparts?

Miguel A. Rodriguez
Miguel A. Rodriguez
16 January 2024

As the year picks up it is clear the ECB is more apprehensive about quick rate cuts. Continue reading to discover the latest market news in the EU, German Bonds, the Euro, and more. 

EU’s Road to Economic Recovery

Yesterday had little activity in the North American market due to the Martin Luther King holiday in the United States.  

In Europe, Industrial Production data was published, which fell more than expected, -6.8% vs. 5.9% expected, this shows that the economy's recovery is still far from starting.

Germany's initial GDP data indicates a slight decline of -0.30%. While Germany has narrowly avoided a technical recession, defined as two straight quarters of GDP decrease, its economic growth has been adversely affected. This is largely due to the economic slowdown in China, a key export market for Germany, and the significant impact of the conflict in Ukraine.

On a more positive side, the Eurozone Trade Balance data shot up with a surplus of 20.3 B vs. 11.4 the previous month, data that could be a sign of recovery.

Despite the challenges facing the European economy, some members of the European Central Bank's Governing Council, like Holzmann recently, have said that expectations for quick rate cuts in Europe are not realistic. They seem inclined to keep rates steady throughout the year, dampening hopes for rate reductions that were anticipated by the end of the first quarter.

A Prolong to Rate Cuts Affect Euro Index

As a result of the above, the Eurostoxx50 index fell 0.6% at closing, extending the losses suffered since the beginning of the year. Consumer goods and retail stocks led the decline after data showed Germany's economy contracted for the first time since the pandemic last year. 

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Europe50 daily chart, January 16, 2024. Source: CAPEX.com WebTrader.        

 

European Bond Yields Climbed

The German 10-year bond yield rose about five basis points to a monthly high on Holzmann's "hawkish" comments.

Although European bond yields rose, the Euro remained virtually unchanged throughout the session, partly due to weak economic data, but also due to low market activity on the Martin Luther King holiday. 

Key Takeaways

  • Overall, there was low market activity due to the Martin Luther King holiday in the US.
  • Europe’s Industrial Production data showed a decline of -.30%.
  • ECB official, Holzmann made remarks that quick rate cuts are not realistic for the future.
  • Eurostoxx50 index fell 0.6% in response to the above.
  • German 10-year bond yield rose nearly 10 bp. 

Sources: Bloomberg, Reuters 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.