European equities end the day in an upward trend

European equities end the day in an upward trend

European Economy and Stock Market Mid-2025: A Cautiously Optimistic Phase

The European economy and stock market are currently experiencing a period of cautious optimism, characterised by a positive equity market performance and a stable inflation outlook. This phase comes amid ongoing trade tensions and tariff-driven growth pressures.

The European Central Bank (ECB) recently held its key interest rate steady at 2%, pausing the rate cut cycle that started in June 2024. Inflation in the eurozone has stabilised around the ECB's 2% target, aided by falling energy prices and slower services inflation. Markets expect possibly one more rate cut later this year, reflecting an uncertain environment and the impact of a strong euro.

European stock markets have significantly outperformed US equities in 2025, marking one of the best relative performances since 1986. This rally is fuelled by a number of factors including Germany’s increased spending plans, rising defense budgets, structural reforms, and a shift in investor sentiment favouring Europe over the US due in part to US global tariff policies.

The recent US-EU trade agreement set tariffs at 15% on most EU exports to the US, which although lowers uncertainty compared to a potential 30% tariff scenario, still imposes a significant cost. This agreement likely reduces euro area GDP growth by about 0.5% and may limit significant equity market gains, though it also removes some inflation uncertainty for the ECB since the EU has refrained from retaliatory tariffs.

Currency movements have been influential: the euro has strengthened relative to the US dollar, which has weakened due to US fiscal concerns and tariff policy uncertainty. This currency shift accounts for over 60% of MSCI Europe’s gains in dollar terms in 2025, further boosting European equities for international investors.

In the equity market, among other European markets, Belgium, Czech Republic, Denmark, Finland, Greece, Iceland, Ireland, Netherlands, Norway, Poland, Portugal, Spain, Sweden, and Turkey closed higher. Airtel Africa rallied 7.3%. Ashtead Group, Diploma, JD Sports Fashion, Rentokil Initial, and AstraZeneca gained 2 to 4%.

The services Purchasing Managers' Index (PMI) in the euro area advanced to 51.2, indicating growth in the services sector. The UK services PMI registered 51.2, down from 52.8 in the previous month, signalling a moderation in the pace of expansion. The manufacturing PMI in the euro area improved to 49.8, while in the UK, the factory PMI improved to 48.2.

Notable performers in the UK market include BT Group, which jumped 10.5% after naming Patricia Cobian as its first female chief financial officer. Reckitt Benckiser surged nearly 10% after upgrading its full-year guidance. However, SSE ended lower by about 3.1%. Beazley, Fresnillio, 3i Group, BP, Severn Trent, Endeavour Mining, United Utilities, Melrose Industries, and Glencore also ended notably lower.

In the French market, Eurofins Scientific rallied 4%. Credit Agricole, Pernod Ricard, Societe Generale, Publicis Groupe, Schneider Electric, Orange, Legrand, and Teleperformance gained 1 to 2.2%. BNP Paribas ended modestly higher.

In Germany, Deutsche Telekom climbed about 5%. Siemens Healthineers, Commerzbank, Bayer, Qiagen, Puma, BASF, Deutsche Post, and Merck gained 1 to 3%. However, STMicroElectronics tanked nearly 17%.

In the UK, Infineon Technologies drifted down by about 4%. Rheinmetall and RWE also ended sharply lower. Deutsche Bank soared more than 9% on strong earnings, reporting a second-quarter profit of 1.49 billion euros. Dassault Systemes closed more than 8% down. TotalEnergies ended lower by more than 3%.

The ECB stated that the euro area economy has so far proven resilient in a challenging global environment. However, the trade tariffs and geopolitical risks continue to pose downside risks. The stock market is benefiting from investor rotation into Europe, supportive fiscal reforms, and positive sector dynamics, but these risks remain a concern.

In the UK market, Howden Joinery soared nearly 9%, with pre-tax profit rising 4.4% to 117 million pounds for the six months ended June 2025. Russia ended weak, while Austria closed flat.

In summary, the European economy is experiencing a cautiously optimistic phase, with a stable inflation outlook and steady ECB policy amid ongoing trade tensions and tariff-driven growth pressures. The stock market is benefiting from investor rotation into Europe, supportive fiscal reforms, and positive sector dynamics, but the trade tariffs and geopolitical risks continue to pose downside risks.

1. In the realm of personal-finance and business, investing in European stocks could be an interesting opportunity due to the cautiously optimistic phase of the European economy and stock market.
2. The finance sector, particularly in the UK, has shown significant movements, with companies like Deutsche Bank experiencing significant gains, while others like Dassault Systemes faced losses.
3. Europe's education-and-self-development sector has also been affected by the global economy, with companies like Eurofins Scientific and Schneider Electric seeing growth in the French market.
4. Entertainment and sports have had their own set of developments, with the UK market seeing performance fluctuations in companies like Infineon Technologies, BT Group, and Reckitt Benckiser.
5. Technology continues to play a crucial role in the European economy, with sectors like manufacturing and services showing signs of growth or decline, as indicated by PMI reports, such as the improvements in the euro area services PMI and the UK factory PMI.

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