European Stocks Edge Lower Ahead of Fed Rate Cut Decision: STOXX 600, DAX and CAC 40 on 10 December 2025

Date: 10 December 2025

European stock markets traded in a cautious, slightly negative range on Wednesday as investors positioned for the U.S. Federal Reserve’s final policy decision of the year and digested a sharp repricing in euro‑area bond markets.

The pan‑European STOXX Europe 600 hovered around 578 points, essentially flat on the day after spending much of the session 0.1–0.2% lower and on track for a fourth straight session of minimal losses. ^[1]

Germany’s DAX slipped back from recent highs, closing around 24,048 points, a drop of roughly 0.5% from Tuesday and still close to its record‑high range. ^[2] Paris’ CAC 40 drifted a few tenths of a percent lower, while London’s FTSE 100 was little changed, reinforcing the impression of a wait‑and‑see market rather than outright risk aversion. ^[3]

Key takeaways for EU stock markets today

European indices stalled: STOXX 600 was broadly flat around 578, with the DAX and CAC 40 modestly in the red as traders awaited the Fed’s decision and updated projections. ^[4]
Bond yields at multi‑month highs: Germany’s 10‑year yield climbed near 2.9%, its highest since March, as markets priced out further ECB cuts and embraced the idea that the rate‑cut cycle is ending. ^[5]
Insurers and industrials lagged on stock‑specific news, while energy, miners and renewables outperformed, supported by commodity prices and upbeat clean‑energy guidance. ^[6]
2026 outlook remains constructive: Major strategists see double‑digit earnings growth for European companies next year, and targets such as 640 on the STOXX 600 imply further upside, even after strong 2025 gains. ^[7]
Valuations still cheaper than the U.S.: International and European equities trade at a marked discount to the S&P 500 on forward P/E ratios, despite outperforming in 2025 in many currencies. ^[8]

Markets today: muted moves, big event

European trading on 10 December was dominated by one question: how “hawkish” will the Fed’s widely expected rate cut be?

Futures markets and economists broadly anticipate a 25 basis point reduction in the federal funds rate later today, following an earlier cut in October. ^[9] But several Fed officials have openly questioned the need for further easing, and a backlog of U.S. economic data caused by the protracted government shutdown has injected extra uncertainty into the forecasts. ^[10]

Against that backdrop:

The STOXX 600 spent the morning slightly negative and then gravitated back toward unchanged near 578 points, extending a run of very small daily moves. ^[11]
Germany’s DAX dipped around 0.5%, closing just above 24,000, with volumes lighter than the average of recent weeks. ^[12]
The CAC 40 traded 0.1–0.3% lower, while the FTSE 100 hovered around flat to slightly positive, aided by domestic names and a modestly weaker pound. ^[13]
Spain’s IBEX 35 also slipped around 0.2%, adding to the sense of broad, modest softness across the region. ^[14]

In other words, price action was tight but defensive: investors were reluctant to add risk before seeing the Fed’s new “dot plot” and updated economic projections, which will shape expectations for 2026 rate cuts.

Rising yields: ECB hawks and “passive easing” fears

The more dramatic moves today were in euro‑area bond markets, which have become a key driver of equity valuations.

Germany’s 10‑year Bund yield edged up to around 2.87%, its highest level since March, while French 10‑year yields pushed toward 3.6%. ^[15] Markets are now effectively pricing no ECB rate cuts in 2026, reversing earlier expectations for at least a small easing next year. ^[16]

Two narratives lie behind this repricing:

ECB’s “good place” debate
- In a widely discussed interview this week, ECB board member Isabel Schnabel warned that doing nothing for too long could amount to a stealth easing, if the “neutral” interest rate in the euro area is drifting higher. ^[17]
- Her comments follow a year in which the ECB cut its deposit rate in four 25‑basis‑point steps to 2%, while long‑dated German yields and the euro actually rose – the opposite of what textbook easing would suggest. ^[18]
- Market consensus now assumes the ECB will sit on its hands until at least late 2027, with only a small probability priced in for a rate hike at the very end of that horizon. ^[19]
Fiscal and political uncertainty in Europe
- Germany’s decision to significantly increase borrowing and spending has pushed Bund yields higher as investors demand more compensation for duration and fiscal risk. ^[20]
- In France, lawmakers only narrowly approved the 2026 social security budget, a vote analysts describe as a political victory that does little to resolve deeper fiscal strains. ^[21]

Strategists at major European banks argue that rates markets are now re‑pricing for a world where the global easing cycle is largely done, with the Fed still likely to cut further but the ECB and Bank of England essentially on hold. ^[22]

For equities, higher yields cut two ways:

They support banks and insurance companies through better reinvestment rates and wider spreads.
They pressure high‑duration sectors such as technology, renewables and some growth‑heavy industrials.

Today, that balance tilted slightly negative as yields hit fresh multi‑month highs.

Sector moves: insurers slump, energy and renewables shine

Under the quiet index surface, sector rotation was lively.

Insurers and industrials under pressure

The insurance sector was the day’s weakest pocket of the STOXX 600, down roughly 0.8%. ^[23]

Dutch‑founded insurer Aegon dropped around 8% after announcing plans to move its legal domicile and head office to the United States, a shift that rattled some investors and weighed on the broader group. ^[24]

Industrials, which had supported the market in previous sessions, also slid, led by defense names that had enjoyed a powerful multi‑year rally on Europe’s rearmament push. ^[25]

Energy, miners and “green” stocks outperform

By contrast, commodity‑linked stocks outpaced the broader market:

Oil & gas majors posted gains of about 0.7%, supported by a modest bounce in Brent and WTI prices after a multi‑day slide. ^[26]
Mining shares added roughly 0.6%, echoing last week’s strength when copper hit a record high and basic‑resources stocks were among Europe’s top performers. ^[27]

In the “new energy” space, renewables rallied hard for a second day:

Nordex, Siemens Energy and Vestas Wind Systems climbed between 4% and 6%, helped by a very upbeat medium‑term revenue and buyback outlook from U.S. peer GE Vernova, which boosted sentiment toward the whole wind‑power complex. ^[28]

Stock‑specific stories to watch

Several individual names were in focus across EU markets:

Delivery Hero jumped around 5% after telling shareholders it is reviewing capital allocation and “evaluating strategic options”, language that investors often interpret as a potential prelude to asset sales or corporate action. ^[29]
Travel group TUI fell roughly 3% after forecasting more modest sales growth in the coming year despite reporting record adjusted earnings and announcing its first dividend since the pandemic, suggesting high expectations were already priced in. ^[30]
Mining giant Anglo American gained around 1% after shareholders approved a merger of equals with Canada’s Teck Resources, underlining continued consolidation in the global metals space. ^[31]
UK homebuilder Berkeley Group added about 2% after maintaining its profit guidance for fiscal 2026 despite weaker interim revenue and earnings. ^[32]

This mix of idiosyncratic corporate news and macro‑driven sector swings is typical of late‑cycle markets: indices move little, but opportunities and risks at the stock level remain large.

Where European equities stand after 2025’s rally

Even after today’s pause, European equities are coming off a stellar year.

The total‑return version of the STOXX Europe 600 (SXXGR) is up around 16–17% year‑to‑date and about 15% over the past 12 months, leaving the index just a few points below its all‑time high recorded in November. ^[33]
The DAX has gained nearly 18% over the last year, trading between 18,490 and 24,771 points over that period and now consolidating just below its recent peak. ^[34]

Earlier in 2025, European stocks clearly outpaced Wall Street, thanks to Germany’s massive fiscal shift and erratic U.S. policy, before U.S. mega‑cap tech staged a comeback. ^[35]

However, Europe’s rally has been highly concentrated:

Defence stocks and banks have generated more than half of the STOXX 600’s total return this year while representing only about 16% of the index by weight, according to estimates cited by Reuters. ^[36]
Investors have piled into these areas on the back of NATO‑driven rearmament and higher interest rates, pushing valuation multiples in some defence names to levels comparable with U.S. tech leaders. ^[37]

At the same time, international‑equity specialists note that:

Non‑U.S. stocks have outperformed the S&P 500 by double digits in 2025, yet still trade at a roughly 30–35% valuation discount on forward price‑to‑earnings metrics. ^[38]
The MSCI EAFE and European indexes offer higher dividend yields – close to 3% versus about 1.2% for the S&P 500 – and a heavier tilt toward cyclical sectors like financials and industrials. ^[39]

For euro‑based and sterling‑based investors, this mix of strong 2025 performance plus still‑reasonable valuations is central to the bull case for European equities going into 2026.

2026 outlook: can Europe keep up the pace?

Earnings and index targets

Despite near‑term rate jitters, several large institutions remain constructive on European stocks:

Citigroup recently set a 2026 target of 640 on the STOXX 600 – implying high‑single‑digit to low‑double‑digit upside from current levels – and upgraded autos, industrials, chemicals and basic resources, citing a wave of fiscal spending that should kick in across Germany and the broader euro area. ^[40]
Analysts at Charles Schwab expect earnings growth for companies in the MSCI EMU (eurozone) Index to accelerate to double‑digit rates in 2026, nearly matching forecast S&P 500 earnings growth. Financials and industrials – the two biggest weights in EMU – are projected to deliver some of the fastest growth. ^[41]

Taken together, these projections suggest that Europe’s earnings engine may finally be catching up with the U.S. after a decade of underperformance.

Valuation and diversification arguments

Strategists at Schwab and Fidelity both highlight three core reasons why investors are keeping – or increasing – exposure to European and other international stocks: ^[42]

Cheaper valuations
- The MSCI EAFE index (which includes Europe) trades at around 15x forward earnings, close to its long‑run average and well below the S&P 500’s ~22x.
- Every major sector in EAFE trades at a discount to its U.S. counterpart, even after strong 2025 performance. ^[43]
Higher dividends
- Dividend yields near 3% in international markets provide a cushion if valuations de‑rate, compared with roughly 1–1.5% for the S&P 500. ^[44]
Different growth drivers
- While the U.S. is dominated by a handful of AI‑heavy mega‑caps, Europe’s performance leans more on banks, industrials, infrastructure and defence, sectors linked to fiscal expansion and reshoring rather than purely to the AI boom. ^[45]

That last point matters because some market observers are warning that AI enthusiasm is becoming a double‑edged sword.

A widely read Reuters column today notes that global equities have gained about 20% in 2025, with the lion’s share of market‑cap expansion concentrated in ten U.S. mega‑caps tied to AI – companies that now represent roughly 40% of the S&P 500 and 65% of the MSCI All‑Country index. ^[46] The same column argues that if investors start valuing these firms more like capital‑intensive utilities than asset‑light software companies, current market caps could prove difficult to justify.

For European investors, that mix of AI‑driven upside and valuation risk in the U.S. strengthens the argument for keeping a meaningful allocation to cheaper, more cyclically balanced European markets.

Risks: what could go wrong for EU stocks?

Despite the broadly positive medium‑term narrative, several risks overshadow today’s modest index moves:

A “hawkish cut” from the Fed: If tonight’s decision comes with more aggressive inflation forecasts or a shallower 2026 cut path, it could push global yields higher and weigh on all risk assets, including European equities. ^[47]
ECB turning more aggressive than expected: Schnabel’s comments about passive easing, combined with Bund yields at multi‑month highs, have already pushed investors to remove any priced‑in ECB cuts next year. A shift toward actual hike guidance would be a clear negative for rate‑sensitive sectors. ^[48]
Fiscal disappointments: Much of the 2026 upside case for Europe hinges on German and European infrastructure and defence spending materialising as promised. A watered‑down fiscal trajectory could undercut earnings forecasts in key cyclical sectors. ^[49]
Geopolitical and commodity shocks: Hopes for progress in Ukraine and stable oil prices underpin part of today’s calm; any deterioration could quickly revive volatility. ^[50]

What investors should watch next

For anyone following EU stock markets over the next 24–48 hours, the key signposts are:

Fed statement, dot plot and press conference
- How many cuts does the Fed still pencil in for 2026?
- Does Chair Jerome Powell push back against market expectations of a long easing cycle? ^[51]
Market reaction in bond yields and FX
- If U.S. yields fall and the dollar weakens, that typically supports international and European equities, especially value‑tilted sectors. ^[52]
- If yields rise further, expect more stress in rate‑sensitive European sectors and potentially a stronger euro, which can be a headwind for exporters. ^[53]
Ongoing ECB commentary
- Any follow‑up speeches from hawks like Schnabel or more dovish council members will help clarify whether today’s bond‑market repricing has overshot. ^[54]
Corporate guidance and capital‑allocation moves
- Names such as Delivery Hero, Aegon, TUI and the big European banks will remain in focus as investors test how much good news is already “in the price” after 2025’s rally. ^[55]

For now, EU stock markets on 10 December 2025 are in holding pattern: indices are drifting, bond yields are sending a loud signal, and the real direction of travel will likely be set not in Frankfurt or Paris, but in Washington later tonight.