WHAT IS THE OUTLOOK FOR EUROPEAN EQUITIES?

20.03.2024 As European inflation trends down and markets begin to anticipate rate cuts we look at the outlook for European equities.

The last few months of 2023 saw a rally in European equity markets as central banks signalled an end to the relentless rise in interest rates. The outlook for 2024 will be determined by whether growth starts to pick up and interest rate cuts are enacted.

At present the European economy is in the process of bottoming out. The big destocking in manufacturing, exacerbated by the pandemic, is coming to an end. Meanwhile the service sector, as businesses start to anticipate better economic conditions, has begun to turn up. This uptick has been particularly marked in the UK where the service sector survey index has risen from 49.3 to 53.8 over the last six months.

Interest rate cuts in the second half of the year will also be crucial to maintaining market momentum. The main factor keeping interest rates at their currently restrictive levels is high wage growth. So European central banks are watching the Spring wage round very closely. Markedly lower headline inflation and fewer job vacancies should see a step down in wage settlements.  This should be sufficient to allow for rate cuts to begin over the summer.

So, with economic growth bottoming out and interest rate cuts coming into view 2024 should be a positive year for European equities.

For information only. Investors should seek professional advice for their own circumstances before making an investment.

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This post was written by Robin