European Central Bank Sends Interest Rate Cut Signal, US Stocks Rebound, Pre-Earnings Period Could Serve as Turning Point for Recovery
On April 12, 2024, the European Central Bank (ECB) sent a clear signal of interest rate cuts. This decision was based on the lower-than-expected increase in the Producer Price Index (PPI) and a decrease in the overall Consumer Price Index (CPI) in Europe. It indicates that there is low inflationary pressure and the European economy is facing a risk of recession.
Simultaneously, the rebound in the U.S. stock market was led by companies like Apple (AAPL) and NVIDIA (NVDA). The Dow Jones Industrial Average (DJIA) declined by 2 points or 0.01%, while the S&P 500 Index rose by 0.74% and the Nasdaq Composite Index increased by 1.68%. These figures demonstrate relative market stability.
In the previous discussion, caution was advised regarding the VIX index and banking stocks, with a forecast that the pre-earnings period would not significantly impact the U.S. stock market. However, this quarter's earnings could serve as an excuse for a smaller upward movement in the market, and caution should be exercised as there is a possibility of a market pullback after earnings announcements.
Furthermore, the ECB decided to maintain interest rates unchanged but strongly indicated an upcoming interest rate cut. Data shows that in 2023, the overall CPI in Europe temporarily exceeded that of the United States, reaching a staggering peak of 10.6%. However, as interest rates increased to 4%, European companies essentially halted their expansion, leading to business closures and several quarters of negative GDP growth in multiple European countries. Taking Germany, the economic powerhouse of Europe, as an example, it experienced only a slight growth of 0.1% in the second quarter of the previous year, with negative growth in the remaining three quarters, technically entering a recession. This scenario can be extrapolated to other countries within the region. Therefore, there is an urgent need for interest rate cuts in Europe as inflation trends approach 2%.