Javier Molina .- Europe faces a challenging macroeconomic landscape, where caution and monetary policy action intertwine in a scenario full of uncertainties. Meanwhile, European stock markets are positioned in areas of historical highs (dividends included), with discounted expectations of lower rates and corporate results that have not disappointed.
Thus, it seems that the ECB is about to reduce interest rates again, with an expectation of a 25 basis point cut that will bring the deposit rate to 2.5% this Thursday. This measure responds to a weak economy, with declining growth indicators and signs of stagnation, especially in the two largest economies in the region, Germany and France.
Inflation data also plays a decisive role. Although inflation in the eurozone has remained around 2.5% in January, —with expectations of moderation as energy costs decrease, the ECB is at a crossroads of stimulating growth without overflowing inflationary pressures. Forecasts indicate that the rate-cutting policy will continue, with an additional reduction of 50 basis points expected for the next quarter, potentially bringing the rate close to 2% by the end of the year.
This internal uncertainty is compounded by external factors. Tariff threats from the United States, where the imposition of a 25% tariff on European imports could pose a risk of exacerbating the economic slowdown. This scenario could harm European exports, increase uncertainty in the global environment, and complicate the ECB's task of balancing price stability with growth support.
In light of this and focused on investors, the key lies in closely monitoring the evolution of inflation, future decisions by the ECB, and the potential repercussions of a trade war that could undermine confidence in the European economy. In an environment of declining rates and an increasingly 'dovish' monetary policy, an opportunity arises to take advantage of sectors that benefit from lower borrowing costs, those sectors and assets with more adjusted valuations… without discounting the risks arising from weak growth and an uncertain geopolitical environment.
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