European stock indexes rose slightly on Monday as expectations soften on the hikes in the interest rates by the Federal Reserve. This shows there are signs that inflation has passed its peak. The economic optimism in the market is stimulated by a fall in commodity prices and the easing of COVID-19 restrictions in China.
The Euro hit a nine-month peak against the dollar and reached as high as $1.0927 overtaking the recent peak of $1.08875. The US dollar index had fallen around 0.3% at 101.59. The fall in natural gas prices and the hawkish comments made by Klaas Knot led to this rise. Klass Knot, a member of the European Central Bank governing council said on Sunday that the central bank was set to increase interest rates by 50 basis points in both February and March and would continue to raise it in the next few months.
The European stocks have been lifted particularly by the mining and technology shares as Wall Street recovered at the end of the week when there was a jump in Alphabet and Netflix shares. European tech shares rose by 1.4%.
The pan-European STOXX 600 index rose by 0.2%. Liquidity remained low as markets in China, Hong Kong, Singapore, Malaysia, South Korea and Taiwan were closed for the Lunar New Year holiday. London’s FTSE was also up by 0.2%. The pound rose as high as $1.24475 to its highest level in seven months.
“The market’s still quite buoyant at the moment,” said Peter Chatwell, head of global macro strategies trading at Mizuho, who said markets were being driven by the idea that U.S. inflation has peaked. “On the surface, it looks like inflation has been dealt with and the most likely path ahead is lower. I’m still cautious about the inflation outlook for the second half of the year,” he said.
Global markets have been anticipating the possibility that the Federal Reserve would slow down the pace of rising interest rates to fight inflation. This is because the economic data of last week showed a decline in wholesale prices and retail sales. On Friday, Fed. Governor, Christopher Waller said that he favours a quarter-point hike on February 1. He also said that the rates were high enough to be slowing the economy.
Kristalina Georgieva, managing director of the IMF, said Friday at the World Economic Forum that the global economic outlook is not as bad as feared a couple of months ago — “but less bad doesn’t quite yet mean good. We have to be cautious,” she told a closing panel at the World Economic Forum in Davos.