Markets Pause Following Strong Rally
European equity markets traded little changed on Monday, remaining close to record highs after a strong performance last week. Investors adopted a more cautious approach ahead of several important central bank speeches and a series of economic releases expected to provide fresh direction for global markets.
The pan-European STOXX 600 remained close to its all-time high, supported by growing expectations that easing inflation and a softer U.S. labour market could reduce pressure for additional interest rate increases.
Germany’s DAX, France’s CAC 40 and the UK’s FTSE 100 all traded broadly flat in early dealings.
Falling Inflation Expectations Continue to Support Equities
European shares ended last week at record levels, with both the STOXX 600 and Euro Stoxx 50 reaching new highs. Germany’s DAX outperformed, helped by strong gains in major industrial companies, including Siemens, and a widening market rally that extended beyond technology stocks.
Investor sentiment also benefited from weaker-than-expected U.S. employment data, which strengthened expectations that the Federal Reserve could adopt a less aggressive approach to monetary tightening.
Lower oil prices have also eased concerns over energy-driven inflation after geopolitical tensions in the Middle East pushed crude prices higher earlier in the year.
Cyclical sectors such as industrials, manufacturing and financials attracted strong investor inflows throughout the previous week.
Attention Turns to Central Banks
The main focus for investors now shifts to Wednesday’s publication of the minutes from the Federal Reserve’s latest policy meeting.
Markets expect the minutes to retain a relatively hawkish tone, reflecting policymakers’ earlier projections that at least one further interest rate increase could still be delivered this year. However, those forecasts were made before the recent decline in crude oil prices, which may improve the inflation outlook.
Investors will also closely follow comments from Federal Reserve Governor Christopher Waller, European Central Bank President Christine Lagarde, and ECB Executive Board members Isabel Schnabel and Philip Lane for further guidance on the interest rate outlook.
Economic Data to Test Recovery Momentum
This week’s economic calendar will also provide fresh insight into the strength of the Eurozone economy.
Key releases include retail sales and producer price inflation for May across the euro area, together with Germany’s industrial production figures.
The data will help investors assess whether manufacturing activity is beginning to recover and whether consumer demand is showing signs of stabilisation.
easyJet Leads Individual Movers
Among individual companies, easyJet (LSE:EZJ) was one of the strongest performers, rising almost 10% after agreeing in principle to support Castlelake’s proposed takeover offer.
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