European stocks saw modest gains, with the Stoxx Europe 600 Index rising by 0.2%, reaching a seven-week high. This increase was largely driven by positive data from the US job market, which showed a solid recovery after October’s weather and strike-related disruptions. The robust payroll figures reassured investors about the health of the American labour market and supported the Federal Reserve’s stance that the economy is steady but no longer a significant source of inflation. Analysts like Benoit Peloille from Natixis Wealth Management suggested the data was in line with expectations for a soft economic landing, raising hopes for a potential rate cut from the Fed.
The consumer products and automotive sectors led the gains in European equities, while resource-related stocks lagged behind. Direct Line Insurance Group saw a notable rise after Aviva announced a preliminary agreement to acquire the UK motor insurer. Meanwhile, French stocks performed particularly well, with the CAC 40 index rising by around 1.3%, outperforming its European counterparts. This was partly due to growing optimism that the French government would eventually reach a budget agreement despite ongoing political challenges. The French market had suffered a six-week losing streak before this rebound, which some analysts, like Gilles Guibout from AXA IM, described as a relief rally.
This positive movement in French stocks followed a period of political instability, including the collapse of the government earlier in the week. Despite these gains, French equities are still on track for their worst performance against European peers since 2010. David Kruk from La Financière de L’Echiquier pointed out that speculators buying back bets against French stocks also contributed to the rally, though he cautioned that the rally lacked strong fundamental backing.
While European stocks have struggled since September, there is some hope for recovery. Analysts predict that monetary policy support may help, with the European Central Bank expected to cut interest rates sooner than initially anticipated due to lower inflation and weak economic growth. Barclays analysts also forecast that if political risks in France ease and the ECB signals further rate cuts, European stocks, particularly in France, could outperform next year and narrow the gap with Wall Street.
European equities saw a boost as positive US job data and a recovery in French stocks provided a sense of optimism. While the broader European market faces challenges, there is hope that upcoming monetary policy changes could support further growth in the near future.
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.
