What’s going on here? The European Central Bank (ECB) cut eurozone interest rates from 3% to 2.75% on Thursday – its fifth shave since last June. What does this mean? Economists and investors alike had expected this cut. In fact, traders’ activity had baked in a 94% chance of one happening. And boy, was it needed: data out on Thursday showed that the eurozone economy didn’t grow at all last quarter, falling short of economists’ already modest prediction of a 0.1% uptick. Much of the blame lies with France and Germany – the bloc’s biggest economies, both of which shrank. But with any luck, lower rates should support the whole region. They make borrowing cheaper and should, therefore, encourage people, businesses, and governments to spend and invest, pushing more money into the economy. On the downside, though, the trim could prick up still stubbornly high inflation. Why should I care? For markets: A reason to be cheerful. The key European stock market index, the Stoxx 600, initially reached a new peak on Thursday – fresh off three straight days of record-breaking highs. That stands to reason: lower interest rates make new bonds look less attractive while, at the same time, increasing potential returns from riskier stocks. Investors aren’t wild about all of the region’s assets, though. Falling interest rates have made the euro less appealing, so they sold off the currency in favor of others – like the British pound and US dollar. The bigger picture: Control the controllables – and the uncontrollables, if you can. Much of Europe’s fate will depend on decisions made outside its borders. See, the US has threatened to increase trade taxes – a.k.a. tariffs – on European products that are shipped to the States. And if everything from French brie to German cars becomes more expensive, American shoppers will likely buy less of the region’s wares. That could slow the economy down by more than lower rates can offset. | 
