Central banks are buying time to see if economies can raise rates safely
On a Tuesday in mid-November 2021, European equity markets reached historic heights as two currents converged: a diplomatic encounter between the leaders of the world's two largest economies offered a glimpse of reduced tension, while corporate earnings and regional growth data affirmed that recovery, long promised, was finally arriving. The moment captured something enduring about markets — that they move not only on numbers, but on the human hope that conflict might yield to cooperation and that prosperity, interrupted, can be restored.
- The STOXX 600, DAX, and CAC 40 all struck record peaks simultaneously, signaling that European investor confidence had reached a post-pandemic apex.
- A virtual summit between Biden and Xi injected rare geopolitical calm into markets that had grown weary of US-China friction, giving traders permission to exhale.
- Prosus surged 4.2% on a brighter profit outlook, while Kering leapt 4.4% as Gucci signaled revenues had clawed back to pre-pandemic levels — luxury and tech leading the charge.
- Eurozone GDP growth of 2.2% quarter-on-quarter confirmed that the region's recovery was no longer a projection but a near-accomplished fact.
- The ECB's continued dovish posture — Lagarde pushing back against rate-hike expectations — kept the floor beneath equities firm, even as inflation and a new COVID wave lurked at the edges.
- Against the tide, Jeronimo Martins plunged 11.1% after a major shareholder liquidated its entire 5% stake, a sharp reminder that not every vessel rises with the same current.
European stock markets climbed to fresh record territory on Tuesday, carried by a confluence of forces that rarely align so neatly: diplomatic optimism, strong corporate earnings, and affirming economic data. The pan-European STOXX 600 edged up 0.2%, while Germany's DAX and France's CAC 40 also reached new peaks.
Two companies defined the day's energy. Dutch tech investor Prosus jumped 4.2% after forecasting higher profits in early 2022, a trajectory supported by the $12.3 billion it had raised selling part of its Tencent stake. French luxury house Kering climbed 4.4% after Gucci signaled its revenues would match or surpass pre-pandemic levels — a milestone that HSBC underscored by upgrading the stock to a buy.
The broader mood was shaped by a high-stakes virtual meeting between President Biden and China's Xi Jinping, which markets read as a tentative step back from confrontation. Investors who had long priced in geopolitical friction found reason for cautious relief. Eurozone GDP growth of 2.2% in the third quarter reinforced that reading — Capital Economics' Jessica Hinds noted that recovery was now nearly complete across most of the region.
The European Central Bank continued to provide a steady hand. President Christine Lagarde had the day before resisted market pressure for rate hikes, and analysts like OANDA's Craig Erlam observed that central banks were deliberately buying time — waiting for enough economic stability to justify tightening without choking growth. That patience remained a quiet engine beneath the record-setting calm. Vodafone added its own note of confidence, rising 0.5% after lifting its annual free cash flow guidance.
One sharp exception cut through the optimism: Portuguese retailer Jeronimo Martins fell 11.1% after a major shareholder sold its entire 5% stake — a solitary reminder that even on record days, the market's tide does not lift every shore equally.
European stock markets climbed to fresh records on Tuesday, riding a wave of optimism that flowed from two distinct sources: a high-level meeting between the American and Chinese presidents that suggested a thaw in their nations' tense relationship, and a string of corporate earnings that exceeded expectations. The pan-European STOXX 600 index closed up 0.2%, while Germany's DAX, France's CAC 40, and broader eurozone equities all notched new highs.
Two stocks in particular drove the day's momentum. Prosus, the Dutch technology investment firm, surged 4.2% after announcing it expected higher profits in the first half of 2022—buoyed by the $12.3 billion it had raised in April by selling a portion of its stake in the Chinese tech giant Tencent. Kering, the French luxury conglomerate, climbed 4.4% to lead the CAC 40 after its flagship brand Gucci signaled that 2021 revenues would match or exceed pre-pandemic levels. The optimism around Kering was reinforced when HSBC upgraded the stock to a buy rating.
The backdrop for these gains extended beyond corporate performance. The meeting between President Joe Biden and Chinese leader Xi Jinping, which took place as markets were opening, was widely interpreted as a sign that the two powers were moving toward less confrontational footing. Investors, who had grown accustomed to trade tensions and geopolitical friction, saw room for relief. Economic data reinforced the positive mood: eurozone gross domestic product expanded 2.2% quarter-on-quarter during the July-to-September period, matching forecasts and suggesting the region's recovery from the pandemic was nearing completion.
Jessica Hinds, Europe economist at Capital Economics, captured the significance plainly: the solid GDP growth meant that recovery was now nearly finished across most of the eurozone. The broader market environment had been supportive for weeks. November had already brought a series of encouraging corporate earnings reports, signals from the European Central Bank that it was in no rush to tighten monetary policy, and a stream of economic data that suggested the region was healing despite persistent inflation worries and a fresh wave of COVID-19 cases.
ECB President Christine Lagarde had pushed back the day before against market expectations for rate increases, a dovish stance that continued to anchor investor sentiment. Craig Erlam, senior market analyst at OANDA, observed that the modest daily gains—despite the record levels—reflected the delicate balance central banks were trying to maintain. They were buying time, he explained, waiting to see whether economies had stabilized enough to support higher rates without derailing growth. That patience was working in equities' favor. The telecom sector got its own lift when Vodafone announced it was raising its annual free cash flow guidance, sending the stock up 0.5%.
Not every stock moved higher. Portuguese food retailer Jeronimo Martins fell sharply, dropping 11.1% after Asteck, a unit of the Heerema Group, sold its entire 5% stake in the company. The sale suggested a shift in investor positioning, though it stood apart from the broader current pushing European equities toward new ground.
Notable Quotes
The decent increase in euro-zone GDP in Q3 means that the recovery is now almost complete in most of the region— Jessica Hinds, Europe economist at Capital Economics
Central banks are pushing for as long as they can to buy time and see if economies are in a good position to raise rates, at which point they could start to safely tweak their language— Craig Erlam, senior market analyst at OANDA
The Hearth Conversation Another angle on the story
Why did a conversation between two presidents move European stock markets so visibly?
Because investors had been bracing for confrontation. The U.S.-China relationship had been a source of friction—tariffs, trade restrictions, geopolitical jockeying. When Biden and Xi met and the tone seemed less hostile, it removed a cloud of uncertainty that had been hanging over markets.
But the STOXX 600 only rose 0.2%. That's barely a move.
True, but it hit a new record while doing it. The market was already at historic highs. Small incremental gains at those levels are actually significant—it means there's still appetite to push higher, not fear pulling things down.
What about the eurozone GDP number? Was that the real driver?
It was part of the picture. The 2.2% growth confirmed that recovery was on track, which matters because it gives central banks cover to stay patient. If growth had disappointed, there would have been pressure to act. Instead, the data let them keep doing what they're doing.
Which is what, exactly?
Waiting. Buying time. They're not raising rates yet because they want to see if economies can sustain growth on their own. If they tighten too soon, they risk choking off the recovery. So they signal patience, and markets reward that patience.
Prosus and Kering both had strong moves. Were those earnings surprises?
Not surprises exactly—they delivered on what the market was hoping for. Prosus had already raised billions from selling Tencent shares, so the profit forecast was credible. Gucci saying revenues would match pre-pandemic levels was a signal that luxury demand had truly recovered. Those aren't shocks; they're confirmations.
And Jeronimo Martins falling 11% on a stake sale—what does that tell you?
That not everyone is bullish. A major investor exiting a 5% position is a vote of no confidence, or at least a signal that the investor's thesis has changed. It's a reminder that even in a rally, there are always sellers.