European equity markets ended the week on a strong note, with the pan-European STOXX 600 and Germany's DAX both closing at record highs on Friday. The rally was fueled by growing expectations that the Federal Reserve will delay further interest rate hikes, prompting investors to rotate into cyclical sectors.
The STOXX 600 rose 0.7% to a new closing record, after touching an intraday peak of 652.35. The index posted its strongest weekly gain since mid-May. Germany's DAX advanced 0.8% to another all-time closing high, while the UK's FTSE 100 added 0.2% to close at 10,679.03, securing a weekly gain. The FTSE 250 also rose 0.5%.
Cyclical Stocks Lead the Rally
The advance was broad-based, with cyclical sectors such as industrials, financials, and defense stocks leading the charge. Investors are broadening their focus beyond technology shares, attracted by relatively cheaper valuations in Europe. As one analyst noted, European indices are less exposed to the AI trade and offer attractive value.
Defense stocks rose 0.7% after Russia launched its deadliest strike on Ukraine this year, reinforcing expectations for increased defense spending across Europe. Banks, financial services, and industrial companies were also among the week's strongest performers, supported by easing tensions in the Middle East.
Germany's Siemens gained 2.6% after Kepler Cheuvreux upgraded the stock to 'hold' from 'reduce.' Semiconductor-related stocks also rallied, with Aixtron jumping 6%, while Soitec and BE Semiconductor Industries gained 5% and 4.2%, respectively. French benefits company Pluxee rose 7.8% after reporting a smaller-than-expected decline in third-quarter organic sales.
FTSE Supported by Financials, Miners, and Chemicals
In London, financial stocks helped lift the FTSE 100. Close Brothers Group surged 7.9%, while Lion Finance Group and Standard Chartered gained 2.8% and 1.5%, respectively. Precious metals miners rose 1.4% as gold prices strengthened after weaker-than-expected US employment data reduced expectations of a near-term Fed rate hike. Chemical stocks also outperformed, rising 2.5%. Johnson Matthey climbed 4.9% after receiving Chinese regulatory approval for the sale of its Catalyst Technologies business to Honeywell, with the company expecting the transaction to close by the end of August.
For more on the broader market trends, see our coverage of the Stoxx 600 hitting a record 653 and the Dow's record close amid similar rate expectations.
Central Bank Outlook Remains in Focus
Markets continued to assess the monetary policy outlook following softer US economic data and fresh comments from European policymakers. A weaker-than-expected US jobs report on Thursday strengthened expectations that the Federal Reserve could delay further interest rate hikes. Meanwhile, euro zone inflation data released earlier this week showed price growth slowed more than expected in June.
European Central Bank President Christine Lagarde said risks to inflation and economic growth had become more balanced than they were only a few weeks ago. According to LSEG data, traders now expect the ECB to raise interest rates by a total of 23 basis points this year.
In the UK, Bank of England policymaker Catherine Mann said lower market expectations for future rate increases since the June Monetary Policy Committee meeting would be an important consideration ahead of the central bank's policy decision later this month. Investors also monitored UK economic data, which showed businesses maintained elevated price expectations in June despite easing energy costs. A separate survey indicated Britain's services sector contracted for a second consecutive month, recording its weakest performance since early 2023.
For additional context on how weak US jobs data is influencing markets, read our report on oil prices edging higher amid a pressured dollar.
This article is for informational purposes only and does not constitute financial advice.
