Business

Eurozone Growth Stalls as Germany and France Contract, Raising Expectations for ECB Rate Cuts

Published

8 hours ago

January 30, 2025

RTX

The eurozone economy stagnated in the final quarter of 2024, as Germany and France posted unexpected contractions, reinforcing expectations that the European Central Bank (ECB) will cut interest rates to support struggling growth.

According to preliminary data from Eurostat, eurozone GDP remained flat in Q4 2024, a sharp slowdown from the 0.4% growth recorded in the previous quarter and below analysts’ expectations of a 0.1% expansion. This marks the weakest performance since Q4 2023.

Germany and France Struggle, Portugal Leads Growth

The biggest drag on growth came from the bloc’s two largest economies:

Germany’s GDP shrank by 0.2%, worse than the 0.1% decline forecasted.
France’s economy contracted by 0.1%, missing expectations of stagnation.
Italy’s GDP remained flat for the second consecutive quarter, defying projections of a 0.1% increase.

Meanwhile, some smaller economies outperformed:

Portugal led growth with a 1.5% increase, followed by Lithuania (+0.9%) and Spain (+0.8%).
The worst-performing economies were Ireland (-1.3%), Germany (-0.2%), and France (-0.1%).

“Once again, it is the periphery driving growth, while Germany and France remain a drag due to structural and cyclical headwinds,” said Kyle Chapman, FX Markets Analyst at Ballinger Group.

ECB Poised for Rate Cuts

The weak GDP figures have strengthened market expectations that the ECB will cut rates at its next policy meeting. Analysts predict a 25-basis-point cut to 2.75%, with at least four reductions expected by the end of 2025.

The ECB faces pressure to stimulate the economy, particularly as inflation trends toward the 2% target. ECB President Christine Lagarde is expected to emphasize that monetary policy alone is not enough, calling for fiscal support and structural reforms to improve competitiveness.

Policy Gap Widens Between ECB and Federal Reserve

The ECB’s likely rate cuts contrast sharply with the US Federal Reserve, which held rates steady at 4.25%–4.50% in its latest meeting. Fed Chair Jerome Powell signaled that there is “no rush” to cut rates further, citing continued US economic resilience.

“The eurozone is fragile, with stagnant growth and rising recession risks,” said Boris Kovacevic, Global Macro Strategist at Convera. “In contrast, the US economy remains strong, driven by consumer spending, a tight labor market, and AI-driven investment.”

Market Reactions: Euro Steady, Bond Yields Fall

Financial markets reacted cautiously to the data:

The euro held steady at $1.04 ahead of the ECB decision.
Sovereign bond yields fell, reflecting increased demand for safe-haven assets:
- German Bund yield dropped 6 basis points to 2.52%.
- France’s 10-year OAT yield fell to 3.26%.
- Italy’s BTP yield slid 7 basis points to 3.60%.
Eurozone equities saw muted movement, with the Euro STOXX 50 rising 0.5%.
Germany’s DAX hit a record high (+0.2%), while Deutsche Bank shares fell 3.4% on weak revenue guidance.
Spain’s IBEX 35 outperformed (+0.8%), boosted by gains in real estate and banking stocks.

Outlook: More Cuts Ahead?

With Germany and France struggling, the ECB faces growing pressure to support growth through monetary easing. However, policy divergence with the US Fed could weigh on the euro, while persistent structural issues in Europe’s biggest economies remain a key concern.

Business

Mixed Earnings for US Tech Giants: Tesla and Microsoft Disappoint, Meta Surges

Published

8 hours ago

January 30, 2025

RTX

The latest earnings reports from major US tech firms presented a mixed picture, as Tesla and Microsoft fell short of market expectations, while Meta Platforms exceeded forecasts across all key metrics.

Despite weaker-than-expected results, Tesla’s stock rebounded on future growth prospects, while Microsoft’s shares fell on concerns over slowing cloud growth. Meanwhile, Meta’s strong earnings propelled its stock higher, despite ongoing legal challenges.

Tesla: Focus Shifts to Future Growth

Tesla reported a 2% year-on-year revenue increase in Q4 2024, a significant slowdown from 8% growth in the previous quarter. The company’s core automotive sales fell by 8%, and gross margins declined to 16.3%, marking a four-quarter low.

Despite these setbacks, investors reacted positively to Tesla’s future plans. The company reaffirmed that its next-generation affordable vehicles remain on track for 2025 production, with autonomous vehicle Cybercab set for mass production in 2026.

“We expect the vehicle business to return to growth in 2025,” Tesla stated. Additionally, Tesla’s energy storage business remained a bright spot, with revenue surging 113%, and the company expects at least 50% growth in that segment this year.

Tesla’s stock initially fell after the earnings release but later rebounded, closing up 4% in after-hours trading.

Microsoft: Cloud Growth Slows Amid Capacity Constraints

Microsoft reported 12.3% revenue growth year-on-year, marking its slowest pace since mid-2023. While earnings per share ($3.23) beat estimates ($3.12), concerns over slower growth in Azure Cloud weighed on investor sentiment.

Azure’s 31% revenue growth fell short of the previous quarter’s 33%, as Microsoft struggled with data center capacity constraints. CFO Amy Hood warned that growth will remain flat in the near term, estimating a 31%-32% increase in the current quarter.

Despite these concerns, CEO Satya Nadella highlighted the company’s AI success, noting that Microsoft’s AI-driven business reached an annual revenue run rate of $13 billion—up 175% year-on-year.

The stock, however, fell 4.6% after the earnings release, as investors reacted to the higher-than-expected AI infrastructure spending and slowing cloud growth.

Meta Platforms: Strong Performance Despite Legal Challenges

Meta exceeded expectations across all key financial metrics, reporting:

$48.39 billion in Q4 revenue, up 21% year-on-year.
$8.02 per share in profit, significantly above analysts’ forecast of $6.77.

The company credited its strong results to growth in advertising revenue and the success of its Meta AI chatbot, which reached 600 million users in December. CEO Mark Zuckerberg expects AI user numbers to hit 1 billion in 2025.

However, Meta issued a cautious revenue outlook for the current quarter, and did not provide full-year guidance for 2025. It also warned that regulatory challenges in the EU and US could impact its business.

Meta’s stock rose 2.3% in after-hours trading and is up 14.71% year-to-date, making it the best-performing stock among the Magnificent Seven so far this year.

Market Reactions: Tech Stocks Diverge

Tesla (+4% after-hours): Investors focused on long-term growth, despite weak earnings.
Microsoft (-4.6%): Concerns over slowing cloud growth and AI spending weighed on shares.
Meta (+2.3%): Strong results overshadowed regulatory risks.

With earnings season in full swing, investors will closely watch Apple, Alphabet, and Amazon, as the rest of the Magnificent Seven report their results in the coming days.

Business

ASML Reports Strong Q4 Results Amid Semiconductor Market Turmoil

Published

1 day ago

January 29, 2025

RTX

Dutch semiconductor giant ASML has reported robust fourth-quarter and full-year 2024 earnings, highlighting strong demand in the artificial intelligence (AI) and semiconductor industries despite rising competition from China’s DeepSeek.

Steady Revenue Growth Despite Market Challenges

ASML’s total net sales for 2024 reached €28.3 billion, marking an increase from €27.6 billion in 2023. The company attributed this growth to rapid advancements in AI, which have fueled higher semiconductor demand. However, net income declined slightly to €7.6 billion from €7.8 billion the previous year. Following the earnings report, ASML’s stock surged 10.45% on Wednesday morning.

Surge in Net Bookings

A key highlight of ASML’s performance was the surge in net bookings, which rose to €7.1 billion in Q4 2024, up from €2.6 billion in the previous quarter. This increase was primarily driven by strong demand from Taiwan Semiconductor Manufacturing Company (TSMC). Bookings for extreme ultraviolet lithography (EUV) technology, which is essential for producing smaller and more powerful chips, accounted for €3 billion of the total. ASML remains the only company capable of producing EUV systems.

However, net bookings for the full year declined to €18.9 billion from €20 billion in 2023, reflecting uncertainties in the global semiconductor market.

Optimistic Outlook for 2025

Looking ahead, ASML forecasts first-quarter 2025 net sales between €7.5 billion and €8 billion, with a gross margin between 52% and 53%. For the full year, ASML expects total net sales to range between €30 billion and €35 billion, with gross margins between 51% and 53%.

CEO Christophe Fouquet emphasized AI’s role in driving the industry’s growth: “The growth in artificial intelligence is the key driver for our industry. It has created a shift in market dynamics, presenting both opportunities and risks.”

Analyst Reactions: Confidence in ASML’s Future

Analysts reacted positively to ASML’s results. Ben Barringer, technology analyst at Quilter Cheviot, described the earnings as “impressive,” noting that revenue exceeded forecasts by 2.5%, and profits surpassed expectations by 8%. ASML is forecasting 15% growth in 2025, which Barringer believes underscores confidence in semiconductor demand.

Despite concerns over China’s DeepSeek and declining sales in the Chinese market—which dropped from 47% to 27% quarter-over-quarter—ASML has offset losses with strong demand from South Korea and the US.

DeepSeek’s Disruptive Impact on the AI and Semiconductor Market

The rise of DeepSeek, a Chinese AI-powered chatbot, has intensified market concerns. Since its January 20 release, the app has become the most downloaded free app on the US Apple Store, surpassing OpenAI. DeepSeek claims its AI models match or outperform US rivals in tasks like coding and mathematics while being significantly cheaper and more efficient in semiconductor use.

This development has raised fears for industry leaders like Nvidia, which recently suffered the largest single-day loss in US stock market history, losing nearly $600 billion in market value. Additionally, DeepSeek’s emergence has reignited concerns over the US’s inability to curb China’s AI advancements.

Waiting to See the Long-Term Impact

While ASML’s Q4 results have helped alleviate concerns in the semiconductor market, uncertainty remains regarding how DeepSeek’s rise will shape future demand. Russ Mould, investment director at AJ Bell, acknowledged ASML’s strong earnings performance but warned that AI innovation from China could disrupt industry demand by 2026.

“While ASML is positive about its 2025 outlook, it will take time to see if DeepSeek’s impact will alter demand for advanced chips. If AI development becomes cheaper and more efficient, it could pose challenges for ASML and other semiconductor firms.”

Despite these uncertainties, ASML’s solid order book and strategic positioning in advanced semiconductor manufacturing suggest resilience in a rapidly evolving industry. The coming months will be crucial in determining whether ASML can sustain its momentum amid shifting market dynamics.

Business

Trump’s Tariff Plans Take Shape, Raising Questions About Economic Impact

Published

2 days ago

January 28, 2025

RTX

President Donald Trump has outlined a clearer vision for his long-discussed tariff strategy, signaling plans to impose taxes on key imports such as pharmaceuticals, semiconductors, and steel. Speaking to House Republicans on Monday, Trump emphasized the importance of reshoring manufacturing to avoid tariffs, stating, “If you want to stop paying taxes or tariffs, build here in America.”

Trump’s tariff proposals, which have ranged from 10% to 60% on various imports, aim to target high-profile industries first and expand over time. Pharmaceuticals, semiconductors, and steel are among the initial targets, reflecting the administration’s intent to apply pressure on foreign manufacturers and encourage domestic production.

The move is part of Trump’s broader effort to prioritize American industry, though the timing and specifics of the plan remain uncertain. Treasury Secretary Scott Bessent has reportedly proposed a more gradual approach, starting tariffs at 2.5% and increasing them incrementally. However, Trump rejected this suggestion, telling reporters aboard Air Force One that he prefers a “much, much bigger” starting point.

Economic Implications
Pharmaceuticals and medical supplies, among the largest U.S. import categories, are at the forefront of Trump’s plan. Federal trade data from the Commerce Department shows that the U.S. imported $229 billion worth of pharmaceuticals in 2022, with Ireland, China, and Mexico among the top exporters. Tariffs on these products could complicate Trump’s promise to lower prescription drug prices while potentially increasing costs for American consumers.

The U.S. also imported $126 billion worth of semiconductors and electronic components last year, with Taiwan accounting for over a quarter of the total. As semiconductors are essential for products like computers, smartphones, and vehicles, tariffs on these goods could raise prices across numerous consumer markets.

Steel, another target, has been a recurring focus of U.S. trade policy. Despite tariffs imposed during Trump’s first administration and continued under President Joe Biden, the domestic steel industry has struggled to regain its former prominence. In 2022, the U.S. imported $32 billion worth of iron, steel, and ferroalloys, with Canada, Brazil, and Mexico leading exports.

Mixed Signals and Uncertainty
While Trump has set February 1 as a potential date for implementing tariffs on imports from Mexico, Canada, and China, his past actions suggest uncertainty remains. Previous threats, such as a brief tariff spat with Colombia, highlight Trump’s use of tariffs as a negotiating tool rather than a guaranteed policy measure.

Critics argue that tariffs primarily affect American consumers, as importers often pass the costs on to customers. Trump’s rhetoric, however, frames tariffs as a patriotic measure to strengthen domestic industry and reduce reliance on foreign production.

As the February 1 deadline approaches, businesses and consumers alike are bracing for potential changes that could reshape global trade relationships and impact prices at home. Whether Trump’s bold plans will materialize or serve as leverage in negotiations remains to be seen.