European stocks surge to record high amid reduced rate cut expectations

European stocks soared to a new all-time high on Tuesday, buoyed by reduced expectations for U.S. Federal Reserve rate cuts and anticipation surrounding euro zone inflation data that could offer insights into the European Central Bank’s strategy.

Data released on Monday unveiled a promising picture for the U.S. economy, with manufacturing expanding for the first time in 1-1/2 years in March.

This robust performance, characterized by a sharp rebound in production and an increase in new orders, has cast doubt on the feasibility of the three interest rate cuts projected in the Fed’s latest forecast.

In contrast, euro zone manufacturing activity contracted at a sharper rate in March compared to February, reflecting a continued decline in demand.

European stock kick off Q2 positively

Despite this, European stocks kicked off the second quarter on a positive note, with the pan-European STOXX 600 index climbing 0.2% in early trading on Tuesday. The optimism surrounding stocks persists from the strong first-quarter performance.

German inflation data in focus

Attention now turns to German inflation data due later today, which is expected to provide clarity on the ECB’s future monetary policy decisions. Broader euro zone inflation data is scheduled for release on Wednesday.

In the currency market, U.S. Treasury yields remained elevated following Monday’s manufacturing data, supporting the dollar at its highest level in almost five months.

Euro zone government bond yields also rose, in line with Treasury yields.

Meanwhile, in Asia, traders are closely monitoring the yen’s performance against the dollar, with Japanese authorities prepared to take action against excessive volatility in the currency market.

Oil prices on the rise

On the commodities front, oil prices surged on signs of improved demand from China and the United States. However, geopolitical tensions in the Middle East, exemplified by an Israeli strike on Iran’s embassy in Syria, raised concerns about potential disruptions to oil supply.

Brent crude futures climbed 1.46% to $88.70 a barrel, while U.S. West Texas Intermediate crude futures rose 1.55% to $85.01 a barrel. Spot gold also saw gains, reaching $2,260.72 an ounce after hitting an all-time high of $2,265.49 on Monday.

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