European Stocks Decline Amid Focus on Economic Data and U.S. Policy Uncertainty

European markets closed the week on a cautious note, with the pan-European STOXX 600 index slipping 0.2% by 09:22 GMT. Despite the decline, the index remains poised for a 0.7% weekly gain, as light trading activity marked the return of investors from New Year holidays.

In country-specific moves, Swiss stocks gained 0.2% in their first trading session of 2025, while Germany’s DAX fell 0.3%, and France’s CAC 40 dropped 0.6%.

Sectors exposed to China, such as miners, luxury stocks, and automakers, faced headwinds despite reassurances from Beijing about increased fiscal stimulus in 2025. Officials in China have committed to issuing ultra-long treasury bonds to boost business investment and consumer demand. However, investor sentiment remains muted due to concerns about China’s economic recovery and the looming threat of a trade war with the United States, as Donald Trump prepares to take office later this month.

U.S. Markets Set the Tone for Optimism

The European market’s cautious tone contrasts with the strong performance of U.S. equities in 2024, driven by enthusiasm for artificial intelligence and Federal Reserve rate cuts. Although the STOXX 600 also reached record highs last year, its gains were limited by slowing economic momentum in Europe and political uncertainty in major economies like Germany and France.

Key Events and Policy Expectations

Traders are closely monitoring upcoming U.S. manufacturing data and speeches from officials at both the Federal Reserve and the European Central Bank (ECB). On Thursday, ECB policymaker Yannis Stournaras indicated expectations for the bank’s main interest rate to drop to 2% by autumn 2025, implying an additional 100 basis points of rate cuts this year. This projection aligns with market forecasts and underscores the ECB’s commitment to supporting the region’s fragile economic recovery.

Meanwhile, Germany’s labor market showed resilience in December, as the Federal Labour Office reported a smaller-than-expected rise in unemployment figures.

Notable Stock Movements

Tullow Oil (LON:TLW) surged 12% after securing an exemption from a $320 million tax obligation on its operations in Ghana, providing a significant boost to the West Africa-focused energy firm.

In contrast, Luxembourg-based steel giant ArcelorMittal (NYSE:MT) dropped 3.6% following reports that U.S. President Joe Biden officially blocked Nippon Steel’s proposed acquisition of U.S. Steel, highlighting geopolitical tensions in the global steel industry.

As European markets navigate the start of 2025, investors remain focused on macroeconomic data, central bank policies, and geopolitical developments, setting the stage for a volatile yet potentially rewarding year.