European stocks rise on Fed and BoE rate cut optimism amid US-China trade progress

FTSE 100 hits record high on UK inflation report

European equity markets closed higher overnight, boosted by optimism about an anticipated Federal Reserve (Fed) rate cut and a preliminary United States (US)-China trade framework agreed over the weekend.

In the United Kingdom (UK), the FTSE 100 hit a fresh record high of 9672 before closing 0.08% higher at 9653, continuing its rally following last week’s cooler-than-expected UK inflation report, which showed core inflation at 3.5% year-on-year (YoY) in September (below the 3.7% expected).

This has fuelled expectations of further Bank of England (BoE) easing before year-end, with the UK rates market now showing a 15 basis point (bp) probability of a 25 bp rate cut for the BoE’s December meeting.

DAX faces challenges from international tensions

DAX 40 gained 0.28% to 24,307 ahead of Thursday’s European Central Bank (ECB) meeting. While the DAX outperformed the FTSE 100 overnight, it is poised to underperform the FTSE 100 and its global peers again this month.

Global indices performance month-to-date (MTD):

• Nikkei 225: +12.42% MTD
• Korea Composite Stock Price Index (KOSPI): +16.48% MTD
• Nasdaq Composite Index (Nasdaq): +4.63% MTD
• Cotation Assistée en Continu (CAC 40): +4.18% MTD
• FTSE 100: +3.24% MTD
• Australian Securities Exchange 200 (ASX 200): +1.94% MTD
• DAX: +1.79% MTD
• China Securities Index 300 (CSI 300): +1.62% MTD

The DAX’s underperformance likely stems from persistent investor caution over Germany’s vulnerability to US tariffs, uncertainty about further ECB rate cuts, and concerns over escalating conflict in Ukraine, especially after President Zelenskyy signalled intensified long-range strikes on Russian energy infrastructure.

ECB interest rate meeting

Date: Friday, 31 October at 12.15am AEDT

At its last meeting in September, the ECB kept policy rates unchanged, including the Deposit Rate at 2%. This decision was widely anticipated and marked the second consecutive on-hold decision after the ECB cut interest rates by 175 bp between June 2024 and June 2025.

Since September, there has been a slight uptick in headline inflation (2.2% YoY in September, up from 2.0% in August) driven by services and stabilising energy prices, while core inflation remains steady at around 2.3%.

Growth has been resilient but modest, with purchasing managers' index (PMI) surveys indicating a pickup in business activity. Despite global trade tensions, notably US tariffs, the ECB views the economy as 'in a good place,' with balanced risks to inflation and growth, as reiterated by President Christine Lagarde’s data-dependent, meeting-by-meeting approach.

As such, the expectation for Thursday’s meeting is that the ECB will keep its key policy rates on hold. The European interest rate market is pricing just a 5% chance of another ECB rate cut before year-end.

ECB deposit rate chart

FTSE 100 technical analysis

Last night’s rally in the FTSE 100 to a record high saw it lock in a sixth straight session of gains.

From its April low of 7544, the FTSE 100 has now gained over 28%, which leaves it ripe for a short-term pullback. Notably, there is some bearish divergence evident on the relative strength index (RSI), with it failing to confirm FTSE 100’s move to new highs.

This warns of a potential short correction towards the 9500 - 9400 area, after which we would expect to see the uptrend resume towards the psychologically important 10,000 mark.

FTSE 100 daily candlestick chart

DAX 40 technical analysis

After a strong rally from the April low of 18,489 to the July high of 24,639, the DAX has spent the past three months consolidating its 33% gain from the April low, despite a false break to new highs in early October.

The corrective price action indicates that the DAX’s next move will be to the upside, with a sustained break above 24,800 likely clearing the way for the rally to resume towards 25,500.

Until then, allow for further sideways price action between resistance at 24,600 - 24,800 and support at 23,500.

DAX 40 daily candlestick chart

• _{Source: TradingView. The figures stated are as of 28 October 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}