European shares extend losses on ECB cautious tone

European stock indexes extended their losses in afternoon trading, with both the STOXX 50 and the STOXX 600 falling by 0.8%, after the European Central Bank (ECB) delivered the expected interest rate cut but adopted a more cautious tone regarding future moves.

European shares extend losses on ECB cautious tone

The ECB’s decision to reduce rates was widely anticipated, but the more subdued outlook raised concerns among investors about the central bank’s future policy path. In its revised statement, the ECB indicated that monetary policy is becoming "meaningfully less restrictive," suggesting that further rate cuts may be off the table for the time being, at least until June. This shift in language, signaling a more neutral stance on interest rates, followed closely on the heels of Germany's announcement of new spending plans aimed at stimulating the economy. However, these plans also raised concerns about their potential impact on inflation, with some fearing that additional fiscal stimulus could exacerbate price pressures across the Eurozone.

Positive reaction to auto tariffs delay

Meanwhile, in a rare bright spot for global trade relations, investors responded positively to the Trump administration’s decision to delay auto tariffs on Mexico and Canada by one month. The decision was welcomed by automotive companies and trade experts, as it alleviated some of the uncertainty surrounding US trade policy and its potential effect on the automotive sector. This delay was seen as a temporary reprieve for automakers that were bracing for new tariffs on vehicles and parts, which had the potential to raise costs and disrupt supply chains.

Air France stock surges

On the earnings front, there were some notable gains among European companies. Air France KLM surged by around 14% after exceeding expectations for both full-year and fourth-quarter profits. The strong performance was attributed to increased demand for air travel and effective cost management strategies. Lufthansa also gained 7%, bolstered by a positive earnings forecast for the upcoming year. The German airline predicted a strong rebound in profits, fueled by improving demand and a recovery in global travel. Additionally, Deutsche Post jumped nearly 12% after unveiling a €1 billion cost-cutting plan, which investors interpreted as a positive step toward boosting profitability and improving efficiency within the logistics giant.

Overall mood remains cautious

Despite these positive earnings reports, the overall mood in European markets remained cautious, as investors continued to digest the ECB’s more conservative outlook and the broader macroeconomic challenges facing the region. With concerns about inflation, global trade tensions, and the ongoing impact of monetary tightening, European stocks struggled to maintain upward momentum as the afternoon session wore on.