Federal Reserve Rate Hike Fears and AI Surge Send European Stocks Lower

Ahead of the upcoming Federal Reserve interest rate decision meeting, global capital markets are generally maintaining a wait-and-see stance. Recent US inflation indicators remain stubbornly high, with the core Consumer Price Index failing to show significant declines for several months, keeping the market on high alert regarding the possibility of further rate hikes. Meanwhile, the rapid development and potential risks of artificial intelligence (AI) related industries have also become a focus of investor attention. Affected by this dual pressure, Europe's three major stock indices—Germany's DAX, France's CAC 40, and the UK's FTSE 100—all closed lower during the trading session, reflecting a continuing cautious investment sentiment.

The policy direction of the Fed has consistently been a key indicator for global financial markets. Since 2022, the US Federal Reserve has implemented consecutive rate hikes to curb inflation, bringing the benchmark interest rate to between 5.25% and 5.50% to date. The latest US Consumer Price Index data shows that while the increase has eased slightly compared to the previous month, it remains above the Fed's 2% inflation target. Analysts generally forecast that if inflation fails to show a sustained decline, the Fed may raise interest rates by another 0.25 percentage points at the upcoming meeting; conversely, if inflation shows a clear slowdown, there is a possibility of pausing rate hikes or adopting a wait-and-see approach. This uncertainty directly impacts the trajectory of the US dollar, which in turn ripples through the eurozone's cost of capital and corporate financing environment.

In European markets, the technology and manufacturing sectors bore the brunt of the AI-related impact. Although the application of AI technology serves as a long-term growth driver, associated regulatory risks and talent shortages have also kept investors on guard. Germany's industrial index led the losses during the session, primarily dragged down by declining share prices of semiconductor and automation equipment companies. UK financial services stocks also faced pressure due to a stronger US dollar, with capital flowing toward the relatively safe US Treasury market. Overall, investor uncertainty regarding future earnings has caused European stock markets to exhibit weak performance amid a high-interest-rate environment.

If the Fed ultimately chooses to raise interest rates again, European bond yields are likely to rise in tandem, further increasing borrowing costs in the eurozone and posing a greater challenge to corporate supply chains already burdened by heavy debt. Conversely, if the Fed pauses rate hikes, the US dollar's upward trajectory may reverse, providing support for the euro and potentially encouraging capital to flow back into European stock markets to boost market sentiment. Investors must also monitor policy coordination among central banks; the European Central Bank (ECB) has recently hinted that it will maintain an accommodative policy to offset external shocks, which will alleviate market panic to a certain extent.

For Taiwan, changes in US monetary policy also hold significant implications. The movement of the US dollar directly impacts the New Taiwan dollar exchange rate, which in turn affects the competitiveness of Taiwan's exported goods; at the same time, shifts in global capital flows will influence the proportion of foreign shareholdings in Taiwan stocks and investor sentiment. If the US dollar continues to strengthen, the New Taiwan dollar may face depreciation pressure, exerting upward pressure on raw material costs denominated in US dollars. Conversely, if the US dollar retreats, a stronger New Taiwan dollar will help lower import costs and boost corporate profitability. Investors should closely monitor the outcome of the Fed's decision and its chain reaction on global asset allocation in order to adjust their investment positioning and risk management strategies.

(Source: Central News Agency)