Europe’s Stock Markets Log Their Strongest Week in Six Months

The European stock market has just closed an exceptional week. The STOXX 600 rises by 2.8% and continues to break historical records. Health, banks, and mining lead the way, driven by palpable optimism. But can this euphoria last in the face of the monetary turbulences looming across the Atlantic?

A Golden Week for the European Stock Market

European markets have recorded their best week in six months. The STOXX 600 rose by 0.5% on Friday, achieving a third record in a row, for a weekly gain of 2.8%. 

A notable performance for the European stock market, while on the other side of the Atlantic, the threat of an American shutdown unsettles the markets , weakens the dollar, and pushes gold higher.

The health sector established itself as the main driver of this momentum. On Friday, it rose by 1.3%, buoyed by giants AstraZeneca (+1.6%) and Novo Nordisk (+2.1%). This surge followed a price agreement reached by Pfizer in the United States, which helped ease concerns related to tariffs. 

For UBS, “While the Pfizer deal is not an outright ‘all clear’ signal for the sector, with key details lacking on the tariffs, a boost in near-term sentiment and robust long-term drivers should support a positive outlook”, even if the details of the agreement remain incomplete.

Banks also largely contributed to this improvement. The sector rose by 1%, with a remarkable performance from Raiffeisen, up 7.4%. This surge is explained by discussions within the European Union on a possible lifting of sanctions targeting the Russian billionaire Oleg Deripaska’s assets, in order to compensate the Austrian bank. ABN Amro also stood out, gaining 2.7% after Goldman Sachs upgraded its recommendation from “sell” to “buy”.

Finally, mining companies completed this positive picture. The basic resources index increased by 1.7%, supported by the rise in metal prices. Thanks to this collective performance, the STOXX 600 now shows a gain of 12.4% since the beginning of the year, narrowing the gap with the American S&P 500, up 14.7%. The European stock market thus regains a momentum that brings it closer to Wall Street.

The Fed at the Center of All Attention

The budget paralysis in Washington postponed the publication of the US employment report, initially expected on Friday. Yet this document is a crucial reference for the Federal Reserve, which uses it to calibrate its monetary policy. However, this setback did not dampen the optimism of European investors.

According to the CME FedWatch tool, markets almost unanimously expect another Fed rate cut by the end of the month. 

Fiona Cincotta, analyst at City Index, sums up the prevailing mindset well: “It does very much feel that the market is looking past the ongoing U.S. government shutdown and focusing on Fed rate cut expectations“. 

This confidence is notably supported by a disappointing report on private employment published earlier in the week.

But behind this enthusiasm lies a complex equation. Jerome Powell has reminded that no decision on interest rates is without risk. The Fed finds itself in a strategic deadlock. Some members, like Stephen Miran, advocate for more clear cuts to support employment, while others fear persistent inflation, at 2.9%, which is above the 2% target.

In Europe, the picture remains mixed. The Eurozone services sector grew at its fastest pace in eight months, driven by Germany. France, on the other hand, experienced a stronger than expected contraction, and the United Kingdom saw its activity slow to a five-month low.

Will this European momentum, fueled by hopes for US monetary easing , be sustainable? It will all depend on the Fed’s decisions and its ability to balance employment and inflation. For now, the markets prefer optimism. But economic reality could quickly call them to order.