European stocks settle lower after ECB trims interest rates as expected 

1:37 pm Thursday, December 12th, 2024

By Sruthi Shankar and Johann M Cherian

(Reuters) -European stocks settled lower on Thursday, after the European Central Bank cut interest rates by 25 basis points as expected, and left the door open for further easing to support a struggling economy amid heightened political risks.

The pan-European STOXX 600 index closed a choppy session down by 0.1%, although rate-sensitive eurozone bank shares edged up 0.3%.

The ECB lowered interest rates for the fourth time this year as inflation worries have diminished, shifting the debate to whether the cuts are fast enough to support a stagnant economy that is also at risk of a fresh trade war with the U.S.

However, some investors focussed on President Christine Lagarde’s comments who stressed that the fight against inflation was not over, post which yields on the benchmark German bond inched up. [EUR/GVD]

Market participants are now pricing in about 120 basis points worth of interest rate cuts by the end of 2025, according to data compiled by LSEG.

“The ECB is sticking to the script. Inflation is slowing, leading indicators suggest wage growth will decelerate, and growth is soggy but not catastrophic,” said Mathieu Savary, European strategist at BCA Research.

“As a result, maintaining a consistent pace of easing is appropriate, and allows to keep ammunitions in the chamber if a trade war were to emerge next year.”

The STOXX index has gained over 8% so far this year on expectations of lower borrowing costs, while the U.S. benchmark S&P 500 advanced by over 27%.

The eurozone has tried to navigate a slowing economy, political instability in Germany and France and sluggish demand from top consumer China this year. Given that a majority of European companies are export dependent, a trade war with the U.S. remains a significant headwind in 2025.

Central banks elsewhere in the region including the Swiss National Bank and the Denmark central bank lowered their respective policy rates.

Swiss stocks ended higher by 0.3%, while Danish equities lost 0.5%.

On the STOXX index, basic resources was the top sectoral decliner with a 1.7% drop, while luxury led gains with a 0.9% rise.

Among individual movers, Italy’s Brunello Cucinelli rose 8% after the luxury group upgraded its 2024 revenue guidance.

SThree Plc tumbled 26% after the British recruiter warned on the current financial year profit, citing tough hiring market conditions amid increased political and macro-economic uncertainty, particularly in Europe.

Diageo Plc rose 2.7% after UBS upgraded the stock, citing positive signs for the spirit maker’s U.S. business.

Swiss contract drugmaker Lonza rose 4.9% following plans to exit its capsules and health ingredients business.

(Reporting by Sruthi Shankar, Johann M Cherian and Shashwat Chauhan in Bengaluru; Editing by Vijay Kishore and Shailesh Kuber)