Investor Optimism Lifts European Stocks After Fed Rate Cut

European shares edged higher on Friday as investors drew confidence from the U.S. Federal Reserve’s decision to cut interest rates, its first move since December.

The Fed lowered rates by a quarter percentage point on Wednesday, joining Norway and Canada in easing monetary policy. Wall Street closed at record highs on Thursday, though Japan’s Nikkei (.N225) slipped from its own peak in Asian trading after the Bank of Japan signaled further monetary easing.

At 0923 GMT, the MSCI World Equity Index (.MIWD00000PUS) was flat. The pan-European STOXX 600 rose 0.1% (.STOXX), while London’s FTSE 100 (.FTSE) traded steady.

Investors are betting that further rate cuts from central banks will fuel additional equity gains.

“For the next few weeks, we expect to keep a risk-on tilt in our portfolios and emphasize equities,” said Amundi senior multi-asset portfolio manager Emilie Derambure. “We think the rally will continue, though with the usual volatility.”

While the Fed refrained from signaling a fast pivot to looser policy, stressing a data-dependent, meeting-by-meeting approach, some investors were disappointed, hoping for stronger guidance to support equities.

Markets are also awaiting potential news of talks between Chinese President Xi Jinping and U.S. President Donald Trump, with TikTok and tariffs expected to feature on the agenda.

In currency markets, sterling fell 0.4% to $1.3504 after data showed higher public sector borrowing, pushing up gilt yields. The Bank of England held rates steady on Thursday but slowed the pace of selling bonds bought during past crises.

The dollar, which earlier this week touched its lowest since 2022, firmed slightly, with the dollar index up 0.2% at 97.509. The yen strengthened against the greenback to 147.82.

European government bond yields moved higher, with Germany’s 10-year yield at 2.7361%. Short-dated debt has benefited from rate cut expectations, while longer-term yields have risen on concerns over sovereign finances. The 10-year U.S. Treasury yield stood at 4.1255%.

The Bank for International Settlements warned this week that record equity valuations diverge sharply from signs of investor anxiety in government bond markets.

Oil prices slipped as traders’ concerns about weak fuel demand outweighed the usual support from lower interest rates. Gold rose 0.4% to $3,656.4, heading for its fifth straight weekly gain.