European stock markets closed higher on the first day after the long Easter weekend, as the dollar hit a three-year low amid more contagious drama from the US Trump administration, this time over interest rates.
In comments that sent US stocks sliding on Monday, President Donald Trump had declared that Federal Reserve Chair Jerome Powell was “a loser” and reiterated previous calls for the central bank to cut interest rates.
“There can be a slowing of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” Trump wrote on social media.
Which Stocks Lost the Most?
On Tuesday afternoon the STOXX Europe 600 index closed up 0.24%, despite a day’s trading in which Orsted ORSTED and Novo Nordisk NOVO B had led the news with losses between 6% and 9%. Novo Nordisk fell because of positive results from an obesity pill trial by US competitor Eli Lilly LLY. European markets initially opened lower but moved into positive territory as US stocks advanced, reversing some of Monday’s losses.
In currency markets, the dollar continued its fall against the euro, hitting a three-year low to trade at €0.87. The gold price also hit a fresh high of $3,500 before retreating slightly.
“Ultimately the market is just trying to find its level,” says Morningstar chief European market strategist, Michael Field.
“On the one hand you have some optimism around us being through the worst of the tariff war, and on the other hand you have a rift between the Trump administration and the Fed, which is never great.
“The FTSE 100 is to some degree a defensive play due to the composition of the index—with lots of financials and utility companies, as well as the seemingly more stable situation between the UK and the US.”
US stocks rebounded after a day of losses on Monday. At the time of European market close, the S&P 500 and Nasdaq composite indexes were up around 3%.
The yield on the 10-year US Treasury was at 4.37%, having risen sharply on Monday.
In the UK, the FTSE 100 opened slightly down but then edged higher, led by Bunzl BNZL, Vodafone VOD and Experian EXPN.
Why Have Markets Reacted Negatively to Trump’s Fed Comments?
US markets reacted negatively to Trump’s admonishments on the Federal Reserve because investors fear the president could destabilize the financial system with his comments. Investors fear the uncertainty that surrounds the US’s “safe haven” status.
In his first term, President Donald Trump leveled criticism at Chair Jerome Powell, urging the Fed to cut interest rates. But the wider context to this story is that the US Federal Reserve – like the Bank of England and European Central Bank – is independent of government.
Unlike the Bank of England and European Central Bank, the Fed also has a broader mandate for maintaining maximum employment in the US economy.
After the market drama of the last three weeks, speculation has mounted that central banks will be forced to cut rates to stimulate economic activity and ease debt pressure on consumers and businesses alike.
The European Central Bank has already done this, cutting rates last week amid what it called a “deteriorated” economic growth outlook.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
