European Stock Markets Edge Higher Amid Optimism on U.S. Inflation and Earnings

European stock markets extended their gains on Thursday, buoyed by easing inflation in the U.S., which reinforced hopes for potential Federal Reserve rate cuts. However, weaker-than-expected UK economic growth and rising German consumer prices slightly tempered enthusiasm.

Market Overview

• Germany’s DAX: Up 0.3%
• France’s CAC 40: Gained 0.7%
• UK’s FTSE 100: Increased by 0.6%

Drivers of Market Sentiment

1. Benign U.S. Inflation Data: A drop in U.S. core inflation coupled with robust earnings from major U.S. banks sparked optimism, leading to the largest daily gains on Wall Street since November 6. This positivity carried into European markets, with the STOXX 600 index posting its best performance in four months on Wednesday.
2. UK GDP Growth: Britain’s GDP edged up by just 0.1% in November, missing expectations and adding to concerns about the UK’s sluggish recovery.
3. German Inflation: German consumer prices rose by 0.5% in December, slightly above the 0.4% forecast, which might prompt caution regarding future economic conditions.

Corporate Highlights

• Stellantis (NYSE:STLA): Shares climbed 1.5% despite a 9% year-on-year drop in Q4 shipments to 1.395 million vehicles. The company highlighted improved performance compared to Q3, when shipments fell 20%. Efforts to reduce high inventories are underway.
• Renault (EPA:RENA): Shares gained 1.5% as the automaker reported a 1.3% increase in sales for 2024. A strong Q4, driven by new vehicle launches, offset earlier weaknesses.
• Richemont (SIX:CFR): The luxury goods maker exceeded Q3 sales expectations, reflecting strong demand for high-end products during the holiday season, particularly for its Cartier brand.
• Taiwan Semiconductor Manufacturing (NYSE:TSM): The world’s largest contract chipmaker posted better-than-expected Q4 profits, driven by demand for advanced chips powered by artificial intelligence.

Outlook
European markets are maintaining cautious optimism as lower inflation and strong corporate earnings offer support. However, concerns over the UK’s weak economic performance and elevated inflation in Germany may weigh on future growth prospects. Investors are also keeping a close eye on central bank policies, particularly potential rate adjustments by the Federal Reserve and the European Central Bank.