Ankur Banerjee provides an update on the European and global markets for the day ahead.
The dollar held steady on Wednesday, boosted by high Treasury yields after strong U.S. data reignited concerns of a rebound in inflation, leaving European stocks facing a weak open as traders prepare for divergent political trajectories.
As traders get used to the idea of a measured cycle of interest rate cuts from the U.S. Federal Reserve, they expect significant cuts from the European Central Bank even after data on Tuesday showed euro zone inflation accelerated in December.
Markets are pricing in 99 basis points of ECB easing this year, while they expect the Fed to cut borrowing costs by 37.5 basis points by the end of 2025 , with the first reduction not being fully taken into account until July.
Yields on 10-year Treasury bonds rose to an eight-month high on Tuesday, after data showed the U.S. economy remained resilient, with a stable labor market, but showed signs of a resurgence in risk. ‘inflation.
CONCERNS ABOUT EURO PARITY
The euro thus remained close to its lowest level in two years, reached on the first day of 2025. The single currency fell by 6% last year due to the weak economic situation in the region. and political unrest in France and Germany.
Speculators are sitting on bearish euro positions worth $9 billion, below the record $10 billion reached in early December, according to weekly data from the U.S. regulator.
The euro will remain weak in the near term but is unlikely to fall to parity with the U.S. dollar in the coming months, even if the specter of U.S. tariffs looms, according to a Reuters poll of market strategists last month. looming on the horizon.
Europe’s main index hopes to shake off a lackluster opening, after a flat start to 2025 and a 6% rise in 2024. Bond yields, however, could weigh on tech stocks after hitting a record high more than five months old on Tuesday.
META REVERSAL
On the business front, Meta Platforms on Tuesday removed its U.S. fact-checking program and reduced restrictions on discussions around controversial topics, in the biggest overhaul of its approach to content management recent memory politics. The move comes as CEO Mark Zuckerberg has signaled a desire to ease political tensions ahead of President-elect Donald Trump taking office.
The changes will affect Facebook, Instagram and Threads, three of the world’s largest social media platforms with more than 3 billion users worldwide.
Key developments that could influence markets on Wednesday:
* Retail sales in Germany for the month of November * Producer prices in the Eurozone for the month of November * Sentiment surveys in the Eurozone for the month of December.
