How European Stocks are responding to the Latest Fed Minutes

• The European Stock market enjoyed slight increases as the U.S. Federal Reserve Officials released minutes from the November policy meeting.
• According to the Fed minutes released on Wednesday, many officials think the interest rate will slow soon.
•  This means that the central bank is winning the war against inflation, slow and steady.

US Fed  November 1st and 2nd Minutes released on Wednesday

Minutes of the U.S. Federal Reserve Nov. 1^st and 2^nd policy meeting were released on Wednesday, Nov. 23, 2022. According to the minutes, the majority of the officials predict a reduction in the pace of interest rates in the coming months. Unsurprisingly, the European Stock Market immediately responded positively as the Opening Bells rang on Thursday morning.

A few hours into the trading day, the pan-European Stoxx 600 climbed about 0.3% while Chemicals stocks added 0.7% gains. Several other sectors journeyed further into positivity.

Earlier, in the middle of the year, European shares went down by about 2.7% as the U.S. inflation hit harder than expected, an indicator of expected recession. However, the November Fed meeting minutes indicate that the central bank is slowly winning the war against inflation. Furthermore, there are indications that interest rate hikes will continue to wane heading into 2023.

According to the Fed minutes, “A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.”

Global Stocks shortly pick up momentum

Before the release of the Fed minutes, investors were already taking positive market actions. This was due to the comments from policymakers after the November 1 and 2 meeting. On Tuesday, European stocks hit a new high, the first in three months, as decentralized comments from policymakers gave a clue into what the future holds for interest rates.

The Fed minutes’ impact went beyond Europe, as the Asia-Pacific market also picked a bit of momentum overnight, trading higher as smaller rate hikes are expected ‘soon.’

The U.S. stock market, as expected, traded high into closing hours on Wednesday, as S&P 500 and Nasdaq Composite ended the day with 0.6% and 1% increases, respectively. Though, the U.S. markets are currently closed for Thursday’s Thanksgiving.

The November Feds meeting minute disclosed that officials and policymakers are confident in their policies and that the aggressive tightening campaigns are making positive impacts. “Financial conditions had tightened significantly in response to the committee’s policy actions, and their effects were clearly evident in the most interest rate-sensitive sectors of the economy,” a paragraph from the Fed minutes read.

The past few weeks after the policy meeting have fielded several positive news for the market. For instance, it’s expected that the Federal Open Market Committee (FOMC) will give a 0.5% interest rate hike by December, coming down from the 0.75% that has characterized the last four hikes.

‘More work to be done’

Positive indications like this give hope to the recovering market, but many officials warn of the need to remain cautious. One such is Cleveland Fed President Loretta Mester, who on Monday agreed that recent inflation data has been encouraging, but it’s only a start.

“We’re going to have more work to do, because we need to see inflation really on a sustainable downward path back to 2%,” she said in a live interview with CNBC reporter Sara Eisen. “We’ve had some good news on the inflation front, but we need to see more good news and sustained good news to make sure that we are returning to price stability as soon as we can.”

Federal Reserve Governor Christopher Waller has a similar sentiment, as he mentioned on Wednesday about his openness to lowering interest rate increases to 0.5% in December. “But, I won’t be making a judgment about that until I see more data.”

All eyes now on December 14

With the Feds focused on a 2% target for inflation, it’s no surprise that many of the regulations enforced are seen as too tight and faced criticisms from some quarters. In response, Loretta Mester argued that the Fed is working to lower inflation “as painlessly as possible. I don’t think we should underestimate the consequences of continued inflation in the long run for the health of the economy.”

All the recent stock market shifts indicate steady and favorable conditions as the holidays approach, at least until the next Central Bank interest rate decision on the 14^th of December.