European Stocks Rally on Interest Rate Optimism
European stocks rose on the last trading day of the year, extending a year-end rally on optimism that central banks will keep interest rates low.
The Stoxx Europe 600 Index rose 0.6%, led by gains in banks and insurers. The benchmark index is up 8.2% this year, its best performance since 2017.
Low Interest Rates
The European Central Bank has kept interest rates at record lows since March 2020, and is expected to keep them there for the foreseeable future. The ECB has also launched a 1.85 trillion-euro ($2.2 trillion) bond-buying program to support the economy.
The Bank of England has also kept interest rates at record lows since March 2020, and is expected to keep them there for the foreseeable future. The Bank of England has also launched a £200 billion ($263 billion) bond-buying program to support the economy.
Rising Optimism
The optimism that central banks will keep interest rates low has helped to boost European stocks. Banks and insurers have been among the biggest beneficiaries of the rally, as low interest rates make it easier for them to borrow money and lend it out at higher rates.
The rally has also been driven by optimism that the global economy will recover in the coming year. The European Union has approved a €1.8 trillion ($2.2 trillion) recovery fund to help the region’s economies recover from the pandemic.
Sectors
Banks were the biggest gainers on the Stoxx Europe 600 Index, rising 1.3%. Insurers rose 1.2%, while technology stocks rose 0.9%.
The biggest decliners were energy stocks, which fell 0.7%. Utilities stocks fell 0.6%, while materials stocks fell 0.5%.
Gainers and Losers
Among the biggest gainers on the Stoxx Europe 600 Index were Credit Suisse Group AG, which rose 4.3%, and UBS Group AG, which rose 3.9%.
Among the biggest decliners were Royal Dutch Shell Plc, which fell 2.2%, and BP Plc, which fell 1.9%.
Outlook
Analysts are optimistic that European stocks will continue to rally in the coming year. The European Union’s recovery fund is expected to help the region’s economies recover from the pandemic, while low interest rates are expected to continue to support banks and insurers.
However, analysts caution that the rally could be derailed by a resurgence of the pandemic or a failure of the recovery fund to deliver the expected economic boost.
Overall, European stocks have had a strong year, and analysts are optimistic that the rally will continue in the coming year. Low interest rates and the European Union’s recovery fund are expected to support the rally, but a resurgence of the pandemic or a failure of the recovery fund could derail the rally.