European stocks saw a slight increase on Monday, though the gains were limited as investors approached the market with caution, awaiting key economic data from the region later in the week. The pan-European STOXX 600 index rose by 0.2%, reaching 515.5 points. This followed a significant downturn on Friday, which marked the index’s worst day in over a month.
Economic data released earlier in the day revealed an unexpected contraction in eurozone business activity for September. The Purchasing Managers’ Index (PMI) for the bloc dropped to 48.9, down from 51 in August, indicating a slowdown. The decline was widespread, with Germany, the largest economy in Europe, experiencing a deepening recession, while France, the second-largest economy in the currency union, also returned to contraction after a temporary boost from August’s Olympics-related activity.
Germany’s DAX inched up by 0.3% despite the negative PMI figures, which showed that business activity had shrunk at the sharpest rate in seven months. In contrast, France’s CAC 40 fell by 0.3% as the data indicated that the country’s services sector experienced a steep contraction in September.
British investors awaited flash PMI figures for September, scheduled to be released at 0830 GMT. Meanwhile, board members of the European Central Bank (ECB) were set to speak throughout the week, with Frank Elderson and Piero Cipollone expected to make appearances later in the day.
The initial optimism stemming from the U.S. Federal Reserve’s recent rate cut, which had triggered a global market rally, appeared to be waning. Investors’ focus was shifting towards potential further cuts, particularly with the core personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge, due for release on Friday. This data will be closely watched to determine whether additional rate adjustments are on the horizon.
Lilian Chovin, head of asset allocation at Coutts, commented on the situation, stating that while the number of cuts might not pose the greatest risk to equities, a much weaker economic growth outlook could. Chovin also highlighted the need for an improvement in European earnings, which have been lacklustre in recent months.
Later in the week, markets are anticipating central bank decisions from Switzerland and Sweden. The Swiss National Bank is expected to reduce interest rates by a quarter of a percentage point on Thursday, while Sweden’s central bank is predicted to follow suit with a 25 basis point cut on Wednesday.
In individual stock movements, HSBC Holdings saw a 1.1% rise after BNP Paribas agreed to acquire the bank’s private banking operations in Germany. On the other hand, shares of Commerzbank, a major German lender, fell by 4.4%. This decline followed an announcement from the government that it would maintain its 12% stake in the bank, a move likely to hinder any potential merger with Italy’s UniCredit.
The banking sector overall saw a 1.1% loss, with other stocks such as AstraZeneca dropping 1%. The pharmaceutical company’s experimental precision drug, developed in collaboration with Daiichi Sankyo, failed to significantly improve overall survival rates for patients with a specific type of breast cancer during a late-stage trial.
In the broader economic context, China’s central bank cut its 14-day repo rate by 10 basis points, providing a slight boost to European stocks. This move, alongside speculated additional stimulus measures, was seen as a potential factor in supporting activity in China and, by extension, Europe’s manufacturing and stock markets. Chovin added that further stimulus from China could be the key to sustaining both market activity and broader economic growth in the region.
JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
