BoC and FOMC rate decision due

• ASML beat helps boost tech ahead of key Mag7 earnings.

• DAX hits record high ahead of tomorrow’s ECB rate cut.

• BoC and FOMC rate decision due.

European markets are on the rise once again this morning, with the Euro Stoxx 50 moving within touching distance of record highs thanks to the latest earnings data from chip manufacturing giant ASML. The whopping 100% beat in net bookings for this key player in the chip manufacturing supply chain provides a welcome boost to the tech sector, highlighting rampant demand irrespective of the concerns that have emerged since DeepSeek announced an ability to match OpenAI performance metrics on a shoestring. Ultimately this does highlight that we are likely to see continued strength in terms of demand for AI chips and components throughout the fourth quarter earnings season, but questions do remain over how this week’s news will shift spending patterns and processes going forward.

The DAX has hit a record high, perfectly highlighting the fact that the stock market can often be far removed from the health of the underlying economy. The weaker Gfk consumer confidence survey figure shows that the regular Josef on the streets of Munich perhaps doesn’t feel as positive as the DAX might make you believe. Irrespective of the demise of the German economic success story, the expectation of a rate cut from the ECB tomorrow does provide some optimism that conditions are heading in the right direction. The improved German PMI surveys released last week did provide the basis for some optimism that things are on the turn, although the manufacturing sector remains deep in contraction territory after 2.5 years below the key 50 threshold.

Today brings a focus on the central banks, with the Bank of Canada and FOMC both announcing their latest monetary policy decisions. The two banks are in vastly different positions, with a cautious Fed approach expected to contrast with the continued BoC easing in the face of rising in unemployment and sub-2% inflation. For the Fed, the question is more about how long the pause will be rather than whether they will cut this time around. The fears of an inflationary push under Donald Trump provides the basis for a cautious approach over the coming months, with markets currently pointing towards a likely wait until June until we see the first rate cut of the year. Nonetheless, much of this is based on speculation of what Trump’s policies might do rather than factual evidence that it is occurring, highlighting why Friday’s core PCE inflation gauge will be critical in signalling the direction of travel for prices. Thus far Trump has managed to keep a lid on energy prices, but there will likely be continued concerns as we head towards the potential imposition of tariffs on 1 February.