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| European Markets Eye Further Recovery Amid Key Economic Data PHOTO: REUTERS |
European shares bounce back after worst weekly performance in more than a year, as markets opened on a positive note, recovering from a turbulent week marked by significant losses across key sectors. After facing their worst weekly performance since October 2023, European stocks saw a sharp recovery on Monday, reflecting renewed investor confidence and anticipation of crucial economic data releases.
The pan-European STOXX 600 index, one of the region's most closely watched stock market benchmarks, gained 0.6% by 0815 GMT, reversing some of the losses from the previous week. Investors are now keenly focused on upcoming economic indicators, including inflation data from Germany, Spain, and France, as well as the much-anticipated rate decision by the European Central Bank (ECB), which is expected later in the week.
STOXX 600 Rebounds Amid Optimistic Sentiment
After experiencing its worst decline in over a year, the STOXX 600 index rallied, posting a 0.6% increase as investors took advantage of lower valuations. All major regional bourses advanced between 0.5% and 1%, signaling a broad-based recovery across European markets. Leading the recovery were sectors that had taken significant hits in recent weeks, such as technology and travel, which outperformed on Monday.
Graph: STOXX 600 Weekly Performance (October 2023 - September 2024)
Focus Shifts to Upcoming Inflation Data and ECB Rate Decision
As the market eyes further recovery, much attention is focused on upcoming inflation data from key European economies. Consumer price inflation figures from Germany, Spain, and France, set to be released this week, will be crucial in shaping expectations for the ECB’s next move. Britain's employment and GDP data, scheduled for Tuesday and Wednesday, respectively, are also under the spotlight.
The ECB is widely expected to cut interest rates by 25 basis points during its meeting on Thursday. Investors have largely priced in this rate cut, but market participants are keen to see what ECB President Christine Lagarde will say regarding the future path of monetary policy. With further cuts possible in October and December, traders are looking for clues from key ECB members, who are set to speak throughout the week.
Aoifinn Devitt, interim chief investment officer at London CIV, commented, "The ECB should be ready to unleash a series of cuts, but there is caution around the size and frequency of these moves." The consensus among market analysts is that the upcoming rate cuts may be more gradual and measured, as inflation remains a key concern.
Tech Stocks Lead the Recovery
A sharp rebound in tech stocks played a pivotal role in Monday's recovery, with the sector climbing 1.3%. This followed a challenging week where tech companies faced their worst decline in two months, driven by investor concerns over rising interest rates and potential regulatory challenges.
Travel and leisure stocks also performed well, with the sub-index rising 1.3%. This growth was largely attributed to a significant 6.7% gain in Entain, a British gambling group that announced a stronger-than-expected second half of the year. Entain’s upbeat forecast provided a much-needed boost to the broader travel and leisure sector.
However, not all companies fared equally well. Adidas AG saw a 3.5% drop in its stock price after Barclays downgraded the company from "overweight" to "equal weight." The downgrade reflected concerns over potential headwinds in the sportswear market, as the company faces increasing competition and supply chain challenges.
Global Markets Await U.S. Economic Data
As European markets stabilize, attention is also turning across the Atlantic, where U.S. inflation and producer price data will be released later in the week. These figures will be closely watched, as they are expected to provide important insights into the health of the U.S. economy and influence future Federal Reserve rate decisions.
The U.S. inflation report is set to play a key role in determining whether the Federal Reserve will proceed with additional rate cuts. With mixed signals coming from recent employment and wage data, traders remain uncertain about the size of the Fed's next move, adding an element of volatility to global markets.
In addition to economic data, the upcoming U.S. presidential debate between Democrat Kamala Harris and Republican Donald Trump has also sparked interest among market watchers. London CIV’s Devitt noted, “The impact on Europe of Trump getting elected could be quite severe in terms of tariffs and lack of cooperation,” indicating that the political landscape in the U.S. could have far-reaching effects on European markets.
Conclusion:
European shares bounce back after worst weekly performance in more than a year, reflecting a renewed sense of optimism among investors. With the ECB’s rate decision looming and crucial inflation data from Europe and the U.S. on the horizon, markets are expected to remain volatile in the coming days. However, with sectors such as technology and travel showing signs of recovery, there is hope that European stocks may continue to rebound from last week’s steep declines.
Investors will closely monitor the ECB’s commentary and further economic indicators to gain a clearer picture of the direction of global markets. For now, the recovery in the STOXX 600 suggests that European markets are positioned to withstand the challenges ahead, although the road to sustained growth remains uncertain.(alert-success)
Graph: Major Sector Performance in the STOXX 600 Index (September 2024)
This chart highlights the recovery of various sectors in the STOXX 600 index, with technology and travel leading the way. However, not all sectors are enjoying a positive rebound, as seen with sportswear brands like Adidas, which faced a tough downgrade from Barclays.
As the week progresses, the market will remain focused on whether the recovery can be sustained, particularly in light of economic data from Europe and the U.S., as well as the ECB’s decision.
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