US and European Central Banks Hold Rates Steady, Boosting Stock Markets and Investor Confidence

During its policy meeting on Thursday, the U.S. Federal Reserve (Fed) decided to keep the target range for the federal funds rate unchanged at 5.25% to 5.50%. This move was closely aligned with market expectations, as investors adopt a wait-and-see approach regarding the resilience of the U.S. economy and the trajectory of inflation. On Friday, the European Central Bank (ECB) made a similar decision, keeping its main refinancing operations rate at 4.75% and maintaining stable funding costs across Europe's major bond markets. The synchronized decisions by both central banks to hold rates steady sent a signal to global markets that monetary policy tightening is proceeding at a gradual pace at this stage.

Against the backdrop of the U.S. and European economies keeping interest rates unchanged, major European stock markets generally closed higher. The Euro Stoxx 50 Index rose by nearly 1%, while indices such as France's CAC 40, Germany's DAX, and Italy's FTSE MIB also showed positive performance. The market generally interpreted this rate decision as supportive of corporate earnings prospects, particularly as corporate tax burdens and investment costs remain stable, boosting investors' expectations for medium- and long-term growth. It is worth noting that the rise in European stock markets was not driven by a single factor; investors were simultaneously monitoring U.S. economic data, inflation trends, and the earnings reports of U.S. corporations, with these factors collectively driving capital flows into the stock market.

During this meeting, the Federal Reserve reiterated that it will continue to monitor inflation data and labor market performance, and take further monetary policy adjustments if necessary. Although the Fed's primary objective remains bringing the inflation rate down to 2%, its focus on economic growth has not diminished. The U.S. economy performed relatively robustly in the first half of 2024, with the unemployment rate remaining below 3.7% and the consumer confidence index showing an upward trend. These positive signals have increased investors' risk appetite for the U.S. market, further propelling capital inflows into European equities.

The European Central Bank pointed out during its meeting that although the inflation rate in the eurozone has declined significantly, it remains above the target level, and the volatility of energy and food prices continues to be a risk factor. The ECB stated that it will continuously monitor economic data over the coming months and adjust its policy tools as appropriate. The ECB's steady stance has a significant impact on the European bond market, as investors generally view the ECB's rate decisions as a core indicator for the direction of European bond yields. Keeping interest rates unchanged reduced market uncertainty regarding future rate hikes, thereby lowering volatility in the bond market.

Synthesizing global market reactions, as the U.S. and European economies kept interest rates unchanged, investors' expectations regarding capital flows also underwent subtle shifts. The relative stability of the U.S. market has made it easier for capital to flow into European stock markets, particularly into the financial, industrial, and consumer goods sectors. The rise in European stocks further boosted the exchange rate of the euro against the U.S. dollar, with the euro appreciating by about 0.5% in Friday's trading. This development provides a certain degree of cost relief for European companies facing higher import costs.

In the coming weeks, investors will closely monitor the further policy directions of both central banks. The Federal Reserve's policy statements will be continuously updated in upcoming meetings, particularly regarding the interpretation of inflation data and the trend of the labor market. The ECB will also assess the impact of energy prices and global supply chains in its upcoming economic forecasts. If both central banks exhibit a more hawkish policy stance in future meetings, it could trigger significant volatility in global stock markets. Conversely, if economic data continues to show resilience, the two central banks may continue to hold interest rates steady, further solidifying investor confidence in global economic growth. (Source: Central News Agency)