The European equity market is entering a new trajectory of optimism, with two major international houses giving a clear signal. Citigroup sees upcoming Fed rate cuts as a strong upside driver for global markets, while UBS significantly upgrades its target for the Stoxx 600 index to 600 points for 2025 and 650 points for 2026, a move that puts it in the upper range of market estimates.

According to Citi European Equity Strategy, the Fed is expected to cut rates by 25 basis points this week, with the dot plot suggesting a total of 75 bps of easing by the end of 2025. Chairman Jerome Powell is expected to leave open the possibility of further cuts as risks to the US economy tend to balance out.

Historically, Fed rate-cutting cycles have acted as a strong catalyst for European equities, particularly during periods of “soft landing” without an immediate US recession. In such scenarios, returns in Europe have outperformed both historical averages and the US market.