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03/06/24
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Rate Cut by ECB Likely to Be Positive for European Shares – Goldman
Analysts at Goldman Sachs expect that the European Central Bank (ECB) will next week trim interest rates, a move that is anticipated to be positive for European shares.
Citing historical data the bank said European equities generally perform well after an interest rate reduction as investors become more optimistic about growth and financial conditions ease.
Goldman Sachs said that since the 1980s, European equities have on average gained 2% in the month after a Fed cut. This is about twice the performance of equities in any other month.
They also noted that defensives tend to be outperformed by 1% by cyclical stocks, staples underperform by 1%, and banks stay flat during that period.
Over the longer term, equities generally rise by 6% over 6 months and 10% over 12 months after a rate cut, in line with their historical average. The performance is however dependent on the economic context.
According to the bank, although European stocks underperform when a recession follows a rate cut, they can rise substantially, up to 19%, over the subsequent 12 months if a downturn is prevented.
Goldman Sachs analysts are optimistic about growth globally and highlighted that the Euro Area economy has begun to grow again as it overcame 5 quarters of stagnation.
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