Investor sentiment was buoyed across Europe following a signal from Washington that trade tensions could ease. With tariffs potentially set for a softer landing and German manufacturing output surging for the first time in nearly two years, markets opened the week with a jolt of optimism. Meanwhile, inflationary pressures and rate policy in the UK are back in focus.
European equities opened higher on Monday as a more measured tone from U.S. President Donald Trump on tariffs injected confidence into global markets. The pan-European Stoxx 600 gained 0.5% at the open, with Germany’s DAX jumping 1.05%, France’s CAC 40 up 0.65%, and the UK’s FTSE 100 climbing 0.49%. Trump’s remarks hinted at a more selective approach to tariffs, raising hopes of reduced trade friction between major economies.
Investors turned their attention to fresh preliminary purchasing managers’ index (PMI) data from across Europe, looking for signs of economic resilience. Early indicators showed that Germany’s economic momentum may be strengthening, with business activity expanding at the fastest pace in ten months. Manufacturing production rose sharply in March, with the S&P Global survey recording a PMI increase to 50.9 from 50.4 in February. Manufacturing output surged to 52.1, its first expansion in nearly two years, driven by a rebound in demand and a modest uptick in new orders.
This uptick in German industry arrives alongside a major fiscal stimulus push from Berlin. The Bundestag last week approved a significant spending package targeting infrastructure and defence. Economists suggest the fiscal support, combined with improving industrial output, could underpin a more durable recovery. While manufacturing is still officially in contraction, recent gains – particularly a rise in output five out of the past six months – point to growing momentum.
Notably, some of this production spike may be linked to anticipated U.S. tariff moves, as importers race to frontload orders ahead of potential changes. The Wall Street Journal reported that the final version of Trump’s tariff plan is expected to be narrower in scope, with some industry-specific exemptions likely. This development aligns with the president’s previous remarks hinting at potential leeway for automakers and other key sectors.
In the UK, attention is shifting back to monetary policy. Paul Skinner of Wellington Management suggested the Bank of England could resume rate hikes by year-end, citing persistent services inflation and robust wage growth. With 6% average wage growth and services inflation at 5%, the economic backdrop remains more inflationary than expected. The BoE has held rates at 4.5% since March but could come under pressure to act if inflation proves sticky. Skinner warned that market complacency around the Bank’s stance may be misplaced, adding that structural inflation risks remain.
Elsewhere in Europe, the travel and leisure sector received a lift as Heathrow Airport resumed operations after a weekend outage. British Airways parent company IAG rose 1% in early trading, helping the sector to a 0.8% gain.
Overall, early week market moves reflect a cautiously optimistic mood among investors, as fiscal support, industrial recovery, and evolving trade policy signal a potentially more constructive outlook for the European economy.
JPMorgan European Discovery Trust plc 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.
