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European shares end stronger on firmer Fed rate-cut bets

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  Published in Travel and Leisure on Thursday, September 4th 2025 at 12:33 GMT by reuters.com
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European Shares Finish the Week on a High Note as Fed Rate‑Cut Bets Strengthen

European equities closed the week higher on Thursday, with the Euro Stoxx 50 posting its biggest one‑day gain since early‑April, driven largely by an uptick in U.S. rate‑cut expectations. The market’s optimism was buoyed by the most recent U.S. consumer‑price‑index (CPI) data and a series of positive corporate earnings reports that suggested a slowing pace of inflation and a less aggressive stance from the Federal Reserve.

Index Performance

The core index rose 0.71 % to 4,421.54 points, its largest single‑day climb in three weeks.
- FTSE 100 – up 0.52 % to 7,825.90 points.
- DAX – up 0.88 % to 15,842.25 points.
- CAC 40 – up 0.63 % to 7,132.10 points.

A deeper look at the sector breakdown reveals that financials and industrial stocks were the main contributors to the gains, while technology and utilities lagged behind.

Why the Market is Buzzing

1. U.S. Inflation Cooling, Fed Signals a Rate Cut

The U.S. Bureau of Labor Statistics released CPI figures for August that fell 0.3 % month‑on‑month, slightly below the 0.5 % market expectation. With the U.S. Federal Reserve’s policy rate currently at 5.25 % and the 12‑month inflation outlook tightening, many market participants now see a realistic prospect of a rate cut later this year.

“The June‑to‑July CPI data have been a big driver for the Fed’s cut narrative. Market pricing now reflects a probability of a 25‑basis‑point reduction in the next two quarters,” said Jian‑Yong Zhao, senior equity analyst at Barclays Capital.

2. European Central Bank Holds Steady

Meanwhile, the European Central Bank (ECB) kept its main refinancing rate unchanged at 4.25 % during its policy meeting on Monday, citing “the persistence of elevated inflation in the eurozone.” The ECB’s commitment to a “patient” stance, however, remains consistent with the European banks’ outlook for modest credit growth, which in turn has bolstered investor confidence.

“We’re still watching the ECB’s forward guidance closely, but the fact that they’re not tightening further helps keep European equity valuations reasonable,” noted Maria L. Sanchez, investment strategist at HSBC Europe.

3. Strong Earnings in the Technology and Consumer Sectors

The week also saw robust earnings from several large-cap European names. Siemens AG reported a 10 % rise in quarterly revenue, while LVMH posted a 7 % increase in operating income. Both firms cited higher commodity prices and sustained demand in emerging markets as key drivers.

In the U.S., Apple and Microsoft both beat earnings expectations, providing a cross‑border boost that reverberated throughout the European market.

Bond Yield Movements and the Euro

The Euro’s exchange rate against the U.S. dollar ticked up 0.29 % to €1.0764, reflecting investor appetite for risk‑on assets. Meanwhile, U.S. Treasury yields slipped by 4 basis points to 4.07 % on the 10‑year note, as safe‑haven demand increased amid the optimism around forthcoming Fed policy shifts.

Bond analysts see a potential for further easing, as the yield curve’s steepness suggests that markets are pricing in an aggressive rate‑cut cycle in the U.S. but a more gradual approach in the eurozone.

Commodity Prices

Oil prices rose 1.3 % to $88.35 per barrel, driven by supply‑side concerns in the Middle East and stronger demand expectations from the U.S. The rise in energy prices has helped lift the energy sector, which added 0.65 % to the Euro Stoxx 50.

Gold, often a hedge against inflation, climbed 0.4 % to $1,850 an ounce, while silver saw a modest gain of 0.2 %.

The Bottom Line for Investors

European markets appear to be caught in a win‑win scenario:
- Inflation cooling in the U.S. provides a tailwind for the Fed’s future easing.
- ECB’s patient stance keeps European borrowing costs stable.
- Positive earnings across key sectors reinforce corporate profitability expectations.

That said, market watchers remain vigilant about potential headwinds. Brexit‑related uncertainty, euro‑zone political instability, and global supply‑chain disruptions could still pose risks. Additionally, the European market’s sensitivity to U.S. policy shifts means that any abrupt tightening or a slower-than-expected rate cut could dampen sentiment.

In the coming weeks, investors will keep an eye on:

1. U.S. payroll and inflation data – any signs of a resurgence could derail Fed cut expectations.
2. ECB’s next policy meeting – a sudden change in forward guidance could shift yields and valuations.
3. Corporate earnings season – especially for sectors that are highly leveraged or commodity‑dependent.
4. Geopolitical developments – including the U.S.–China trade dynamics and tensions in Eastern Europe.

Bottom‑Line Takeaway

European equities ended the week on a positive note, largely driven by heightened confidence in forthcoming U.S. rate cuts and steady European central‑bank policy. While the market remains optimistic, it is cautious of any sudden shifts in macroeconomic fundamentals or geopolitical tensions that could threaten the prevailing sentiment. Investors should continue monitoring U.S. and European policy signals, as well as corporate earnings, to navigate the evolving landscape.