European markets rebound as Chinese data fuels rally

European stock indices rose on Thursday, erasing losses from the recent Trump-led selloffs. The pan-European Stoxx 600 gained 0.62%, the DAX increased by 1.7%, and the CAC 40 climbed by 0.76%.

The FTSE 100, however, ended slightly lower after the Bank of England (BoE) cut its policy rate by 0.25%. Investors appeared to reassess the impact of the US election, choosing to look beyond potential tariffs for now, as the re-elected US President refrains from clarifying policies.

Surprisingly robust Chinese trade data bolstered optimism regarding the country’s economic outlook, which is expected to enhance consumer demand in Europe’s key export market. China’s exports rose by 12.7% in October, marking the highest increase in 19 months, which also led to a surge in Chinese stock markets on Thursday. 

Meanwhile, market participants seem to have largely dismissed concerns over German political instability after Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner, effectively ending the coalition government on Wednesday.

Scholz resisted opposition calls for an early snap election in January, leaving his Social Democratic Party in a politically challenging situation. Market reactions have been relatively muted, suggesting that economic fundamentals and broader European performance continue to weigh more significantly on investor sentiment than domestic German political shifts.

China-Growth-Sensitive Sectors Lead Gains in Europe

Most sectors in the Euro Stoxx 600 index recorded gains on Thursday, with China-demand-sensitive sectors, including luxury consumer stocks, automobiles, and mining shares, leading the upward momentum.

Prominent European luxury fashion brands, including LVMH, Hermès, and Kering, all rose between 2-3%. Automotive shares, such as Porsche, Mercedes-Benz, Volkswagen, BMW, and Ferrari, climbed between 2-4%.

Additionally, China’s favourable economic data and a weaker US dollar supported industrial metal and mineral prices, boosting share prices of European mining giants like Rio Tinto, Glencore, and Anglo American, all up by 2-3%.

Fed’s Second Rate Cut Fuels Risk-On Sentiment

The Federal Reserve (Fed) delivered its second rate cut of the year as anticipated, further fuelling a rally on Wall Street, with the S&P 500 reaching a new high, approaching nearly 6,000 by the close of US markets on Thursday.

This risk-on sentiment may continue to support upside momentum in European markets on the week’s final trading day.

The Fed did not alter its stance on the future interest rate path, maintaining language that “the risks to achieving employment and inflation goals are roughly balanced”, while reiterating its data-dependent approach.

Kyle Rodd, a senior market analyst at Capital.com, noted that it “was one of the most vanilla” Fed decisions in recent history.

The central bank avoided providing any new outlooks following the US election or speculating on potential political impacts on future monetary policy.

“The Fed seeks more data to assess the outlook and does not wish to be drawn into politics or speculation about future policy implications of the incoming Trump administration,” added Rodd.

The Fed’s decision shifts market focus back to fundamentals, including a soft-landing economy, a moderating yet resilient labour market, and cooling inflation.

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Euro Rebounds as US Dollar Slumps

The euro rebounded sharply against the US dollar, rising above 1.08 in early Asian trading on Friday. US government bond yields fell across the curve following the Fed’s rate decision, driving the dollar down and erasing most of Wednesday’s gains.

However, the dollar may resume its ascent if “a Republican sweep could bolster expectations of more efficient policy execution, with anticipated tax cuts and deregulation likely to stimulate economic growth and push the dollar higher.” said Dilin Wu, a research strategist at Pepperstone.