Why European stocks are struggling to start 2025

As stock markets started 2025 on a subdued note, the U.S. dollar continued to assert its dominance, leaving the euro and sterling near multi-month lows amid investor concerns over interest rates and U.S. policy directions under President-elect Donald Trump.

European stock markets were poised for a lackluster opening after Asian equities ended the previous week positively, particularly driven by South Korean shares, while Japan remained closed for a holiday. The pan-European STOXX 600 index had recorded a 6% rise last year, and traders are curious to see if it can maintain momentum into 2025.

The euro has struggled in recent months, hovering at levels not seen since November 2022, suffering a more than 6% decline in 2024. Market sentiment has been affected by fears surrounding diverging interest rate policies between Europe and the United States as well as political instability in France and Germany. Additionally, the incoming Trump administration’s potential tariffs have contributed to a negative outlook.

Traders expect significant rate cuts from the European Central Bank in 2025, with market predictions indicating at least four 25 basis point cuts. In contrast, there is uncertainty about the Federal Reserve implementing even two such cuts. The pound, while faring better than other G10 currencies, still touched a nine-month low at the onset of the New Year, experiencing a 1.7% decline against the dollar in 2024.

On Friday, European markets reflected ongoing caution with the STOXX 600 down 0.29% by 10:06 a.m. London time, amid most sectors trading negatively. Auto stocks led the losses, down 1.17%, compounded by declines in the mining and travel sectors, which each fell around 1%. Financial services emerged as one of the few gainers, climbing 0.69%.

U.S. futures remained largely unchanged following a turbulent start to the year, with major indices such as the Dow Jones Industrial Average, S&P 500, and Nasdaq all closing lower. Notably, the Nasdaq marked its fifth consecutive decline, the longest losing streak since April.

In Asia, markets exhibited mixed performance, with Chinese stocks continuing their downward trend as investors analyzed signals from Beijing, while Hong Kong’s Hang Seng index and South Korean markets reported gains.

Data released indicated Türkiye’s consumer price index decreased to 44.38% in December from 47.09% in November—slightly above economists’ predictions of 45.2%. A preliminary reading of Poland’s consumer price index showed a 4.8% annual increase in December, also falling below expectations. In Germany, the federal labor office reported an increase of 33,000 unemployed individuals in December, bringing the total to 2.807 million and nudging the unemployment rate to 6%.

In company news, Tesla encountered its first annual drop in deliveries, attributed to year-end incentives not sufficiently attracting buyers given elevated borrowing costs. Additionally, President Joe Biden decided to block Nippon Steel’s proposed acquisition of U.S. Steel, according to reports.

Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.

Featured image credit: Andreas Rasmussen/Unsplash