European equity markets extended their record-setting advance on Thursday after weaker U.S. labour market data eased concerns over further near-term Federal Reserve interest rate increases, boosting investor confidence across the region.
The pan-European STOXX 600 gained 0.5% in early trading, reaching another all-time high after also finishing at a record level in the previous session.
Global risk appetite improved following a sharp slowdown in U.S. job creation. The softer employment figures helped calm concerns that sustained monetary tightening in the United States could further weigh on economic growth across Europe.
A less aggressive Federal Reserve outlook is viewed as supportive for European assets because it reduces pressure on global borrowing costs, limits capital flows toward higher-yielding U.S. assets and gives the European Central Bank greater flexibility in managing its own monetary policy.
Before the employment figures were released, traders had assigned more than a 60% probability to another Fed rate increase at the September meeting, according to CME FedWatch data. Those expectations had strengthened after recent comments from newly appointed Federal Reserve Chair Kevin Warsh. Following the payroll report, however, markets shifted their outlook, increasingly expecting policymakers to leave rates unchanged until at least October.
ECB comments add further support
Investor sentiment also benefited from remarks delivered during the European Central Bank’s annual forum in Sintra, Portugal.
ECB President Christine Lagarde said that risks to euro area inflation and economic growth are becoming “more broadly balanced,” providing reassurance after last month’s 25-basis-point interest rate increase.
The comments reinforced expectations that the ECB can continue managing its own policy path without being forced to closely mirror future Federal Reserve decisions.
European equities head for strongest week in months
The STOXX 600 remained on track to record its strongest weekly performance in almost two months.
Market sentiment was also strengthened by further progress in negotiations between the United States and Iran.
The improving geopolitical backdrop contributed to oil prices retreating toward pre-conflict levels while shipping activity continued to normalise, easing inflation pressures on European supply chains.
Across the region, Germany’s DAX advanced 0.9% to another record high, France’s CAC 40 rose 0.3%, Italy’s FTSE MIB added 0.5%, and London’s commodity-focused FTSE 100 gained 0.3%.
Among individual companies, Pirelli (BIT:PIRC) climbed 2% following reports that Czech investors are interested in acquiring part of Sinochem’s stake, while Auto1 Group (TG:AG1) gained 2% after J.P. Morgan added the shares to its positive catalyst watch list.
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