European stock indices opened the week with limited gains, with the STOXX 600 index rising by 0.2%, trading just below a key technical resistance level near 550 points. This move reflects cautious investor sentiment as the critical July 9 deadline approaches a date that could see the reintroduction of reciprocal tariffs between the United States and the European Union if no trade agreement is reached. Low trading volumes further underline the lack of strong buying momentum, highlighting persistent concern over a potential breakdown in negotiations.
Market sentiment received some support from positive developments on several fronts. These include relative progress in U.S. China trade relations and Canada’s decision to withdraw its digital services tax, reopening trade talks with Washington. Additionally, the trade agreement between the U.K. and the U.S. has come into effect, including tariff reductions on automobiles and aircraft parts. Nonetheless, ongoing disputes over steel and aluminum tariffs remain a ceiling on any sustained upward market movement in the near term.
On the macroeconomic front, German retail sales fell by 1.6% in May, signaling weakness in domestic consumption and a continued decline in consumer confidence, adding pressure on an economy already grappling with industrial slowdown. At the same time, eurozone inflation fell below the European Central Bank’s 2% target, complicating the ECB’s monetary policy outlook. Policymakers now find themselves constrained between signs of sluggish growth and weakening inflation, making decisive action more challenging.
In this context, markets are keenly awaiting consumer price index (CPI) data from both Germany and Italy. A higher than expected reading could drive bond yields higher and weigh on equity valuations especially in rate sensitive sectors such as technology and real estate. On the other hand, continued disinflation could support the ECB’s accommodative stance, providing additional support to European equities in the short term.
From a corporate standpoint, Polar Capital reported strong growth in operating profits, supported by a rise in assets under management. This reflects an improvement in institutional investor confidence. Such results are often seen as a partial indicator of risk appetite recovery, though they don’t necessarily signal a broad structural shift in overall market sentiment especially given continued volatility in sectors tied to the economic cycle.
In energy markets, oil prices edged slightly lower, with Brent crude holding above a key technical support level at $65 per barrel. Traders are awaiting the upcoming OPEC+ meeting on July 6, where a fifth consecutive production increase is expected since the group began easing output cuts in April. Technically, the medium-term upward trend remains intact, barring any major supply-demand shocks particularly with geopolitical tensions currently subdued across the Middle East.
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