Germany’s GfK Consumer Confidence Index for January edged up slightly, signaling a modest recovery but remaining far below pre-pandemic levels. The index rose by 1.8 points to -21.3 from December’s -23.1, which was the lowest reading since May. Despite surpassing market expectations of -22.5, consumer sentiment remains under pressure from high inflation and job insecurity.
The slight improvement was supported by gains in income expectations and a marginal rise in the willingness to buy. Income expectations rebounded by 4.9 points to 1.4, recovering from a sharp 17-point drop in November. Meanwhile, willingness to buy increased by 0.6 points to -5.4, but remains weak. Conversely, willingness to save dropped by six points to 5.9, suggesting less caution among consumers.
However, economic expectations for January remained flat, rising only slightly to 0.3 from December’s -3.6. Rolf Bürkl, a consumer expert at the Nürnberg Institute for Market Decisions, warned that uncertainty driven by high food and energy prices and concerns about job security continues to weigh on sentiment.
DAX Slides as European Markets Feel Fed Pressure
Germany’s DAX index fell 0.9% to around 20,000 points on Thursday, marking its fifth consecutive session of losses. Leading the declines were Infineon AG (-3.5%), Vonovia AG (-2.4%), and Continental AG (-2%). Meanwhile, MTU Aero Engines AG and Rheinmetall AG outperformed, each gaining 0.8%.
European equities mirrored the DAX’s decline, with the Euro STOXX 50 dropping 1.1%. France’s CAC 40 fell 1.2%, Italy’s FTSE MIB slid 1.3%, and Spain’s IBEX 35 dropped 1.6%. Among major European stocks, Dutch semiconductor giant ASML Holding dropped 3.9%, making it the day’s worst performer. Banco Santander fell 2.9%, and Vivendi declined by 2.7%.
The broader decline followed hawkish signals from the US Federal Reserve, which delivered a widely expected 25-basis-point rate cut. However, the Fed raised its inflation forecast for 2025 to 2.5% from 2.1% and signaled a slower pace of future rate cuts.
Fed’s Hawkish Pivot Adds to Global Uncertainty
Fed Chair Jerome Powell announced a “new phase” of monetary policy, with rates approaching neutral territory and only two rate cuts projected for 2025, down from four previously anticipated. Markets had expected at least three rate cuts, making the updated outlook a significant shift.
Economists noted the Fed’s cautious stance reflects persistent inflation pressures and uncertainty around President Trump’s policy mix. “Sticky inflation and Trump’s policy mix mean a higher hurdle is required to justify rate cuts in 2025,” said Chris Turner of ING Group.
The Fed’s tone fueled risk aversion among investors, adding to concerns over restrictive monetary policy and sluggish European growth. Combined with Trump-related tariff fears, these factors have further pressured European equities, leaving markets on edge heading into 2025.
