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European Equities Rise on US Interest Rate Cut Hopes and Lower Inflation

Strategic Insights

— 2 min read

European equities traded higher on Wednesday, driven by hopes of a US interest rate cut and lower inflation. The FTSE 100 index edged up 0.1%, while the CAC 40 in Paris and the DAX 40 in Frankfurt rose 0.4% and 0.8%, respectively. The rally followed an inflation reading that came in below expectations, easing concerns that recent tariffs were accelerating consumer prices. Futures markets now place a 94% probability on a September rate cut, with some traders betting on a 50 basis-point move after US Treasury Secretary Scott Bessent urged the Fed to consider a more aggressive reduction. The pound rose to USD1.3572 against the US dollar, and the euro climbed to USD1.1720.

Key Takeaways:

  • The FTSE 100 index rose 0.1% to 9,152.68, driven by hopes of a US interest rate cut and lower inflation.
  • The CAC 40 in Paris and the DAX 40 in Frankfurt rose 0.4% and 0.8%, respectively, with futures markets now placing a 94% probability on a September rate cut.
  • US President Donald Trump urged the Fed to consider a more aggressive rate cut, citing the economy's good performance and the need to counter the "Too Late" stance of Jerome Powell.
  • The International Energy Agency has trimmed its forecast for crude oil demand this year, citing softer global economic growth and market uncertainties, with demand expected to rise by only 680,000 barrels per day in 2025.
  • The oil price declined, with a barrel of Brent falling to USD65.69, as the IEA's forecast suggests a peak supply glut in 2026, which could keep a lid on the oil price.
  • Among FTSE 100 constituents, Shell and BP fell 0.8% and 1.6%, respectively, as oil prices declined, while HSBC and Standard Chartered were down 0.2% and 1.3%.
  • Persimmon, a housebuilder, fell 2.5% after reporting a rise in first half profit and maintaining its completions outlook for the full year.
  • Shoe Zone, a retailer, slumped 19% after reporting "challenging trading conditions" with consumer spend under pressure and its forecast halved from GBP5.0 million to around GBP2.5 million.

Statistics:

  • FTSE 100 index: 9,152.68 (up 0.1% on Wednesday)
  • CAC 40: 5,391.03 (up 0.4% on Wednesday)
  • DAX 40: 12,111.09 (up 0.8% on Wednesday)
  • US inflation rate: 2.7% (steady in July)
  • Probability of a September rate cut: 94% (according to futures markets)
  • Oil price (Brent): USD65.69 (down from USD66.29 at the London equities close on Tuesday)
  • Crude oil demand forecast: 680,000 barrels per day in 2025 (down from 700,000 barrels in the previous forecast)

Sources:

  • Alliance News: "European equities trade higher on US interest rate cut hopes, lower inflation"
  • Cboe UK 100: 916.68 (up 0.1% on Wednesday)
  • Cboe UK 250: 19,283.09 (up 0.1% on Wednesday)
  • Cboe Small Companies: 17,057.80 (down 0.2% on Wednesday)
  • International Energy Agency: "Monthly Oil Market Report" (released in Paris on Wednesday)
  • XTB: "Oil price set for a downward trend, according to IEA"
  • Davy: "Persimmon activity has been 'soft generally through the year'"

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