European financial markets saw significant growth on Thursday following the Federal Reserve's interest rate hike. The Euro Stoxx 50 index and the broader Euro Stoxx 600 index each rose by more than 0.6% at the start of the trading session. Meanwhile, France's CAC 40, Germany's DAX 30, Italy's FTSE MIB, Spain's IBEX 35, the Netherlands' AEX, and Switzerland's CH20 rose between 0.2% and 0.7% compared to Wednesday's close. Additionally, the UK's FTSE 100 topped the list with an increase of over 1%.
Growth in the automotive and industrial sectors
In the Paris market, automakers and industries led the way. Renault's shares rose by more than 2%, Stellantis by 1.6%, and Schneider Electric by 1.3%. However, in the technology sector, Dassault Systèmes' shares faced a decline of 2.4%. This growth in European markets occurred while New York markets faced declines on Wednesday, with the Dow Jones down 1.2% and the S&P 500 down 0.4%.
Dollar fluctuations and their impact on European markets
More significant movements were observed in the currency and bond markets. The US dollar reached its highest level in the past seven weeks against a basket of major currencies, due to rising yields on short-term bonds following the Federal Reserve's decision. The euro was trading around $1.146, down 0.5% from Wednesday's opening. The increase in the value of the US dollar makes European exports more competitive in American markets, but raises costs for goods priced in dollars, including oil and gas, which increases Europe's energy financial burden during this difficult time.
In the bond market, the yield on two-year bonds had risen to about 4.72%, while before the decision, it was 4.67%, and it remained near this level on Thursday. The 10-year yield was also close to 5%, reflecting the energy crisis caused by the war and growing concerns among investors about US government debt. Traders now fully expect another rate hike in December and estimate the likelihood of an early increase in October at around 50%.
Attention is expected to turn to the Bank of England, which will announce its decision on Thursday and is expected to keep rates steady. Additionally, the Bank of Japan will be in focus on Friday with the possibility of rate hikes.
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