EasyJet emerged as one of the top gainers with shares surging 11% after the budget airline agreed in principle to an improved takeover proposal from U.S.-based investment firm Castlelake, according to Reuters. The revised offer values the carrier at up to £5.5 billion (approximately $7.34 billion), sparking optimism across the travel sector. The broader travel and leisure index climbed around 1%, making it the best-performing sector in early European trading, as reported by Reuters. The sector continued to benefit from declining oil prices and reduced concerns over supply disruptions after tensions in the Middle East eased in recent weeks. French defence company Thales slipped 1.4% after announcing an agreement to acquire the Gorgé family's stake in drone technology company Exail, ahead of Thales' planned takeover bid for the remaining shares of the company.
Europe's STOXX 600 index was broadly flat at 652.84 points as of 0710 GMT, following a strong weekly rally driven by easing geopolitical concerns and improving investor confidence, according to Reuters. The pan-European index Germany's DAX also notched an all-time high and closed up 0.8%, with both indices showing strong momentum. German industrial giant Siemens jumped 2.6%, leading gains on the DAX after brokerage Kepler Cheuvreux upgraded the stock to "hold" from "reduce", as reported by The Economic Times. Chip firm Aixtron rose 6%, while peers Soitec and BE Semiconductor added 5% and 4.2% respectively. The strong performance was driven by gains in defence and cyclical stocks, with investors pushing back on expectations for an imminent US interest rate hike.
European equities are experiencing a near-term rally as crude oil prices have fallen back to levels seen before the recent regional conflict, according to Reuters. The move has reduced concerns over supply disruptions through the Strait of Hormuz, providing significant relief to Europe's energy-importing economy. Lower energy costs are seen as a major tailwind for Europe, cooling inflation, supporting spending power and lifting corporate margins. This has helped the STOXX 600 hit record highs, with sectors such as industrials, chemicals, travel, banks and luxury benefiting from the improved outlook. Ferrari gained 2% after unveiling a limited-edition 12-cylinder sports car equipped with a manual gearbox, a move aimed at enthusiasts seeking a more traditional driving experience, contrasting with earlier investor concerns over the luxury carmaker's electric vehicle announcement.
Defence stocks were 0.7% higher as Russia bombarded Ukraine with its deadliest strike this year, according to The Economic Times. Investors anticipate more defence spending and output in times of geopolitical tensions, with defence stocks seeing the strongest gains this week alongside cyclicals such as industrials, banks and financial services. Defence stocks have been the top-performing sector this week, benefiting from the broadening rally that previously concentrated in technology stocks. The sector's strength reflects investor confidence in geopolitical stability and the potential for sustained defence spending in the current environment.
Earlier this week, euro zone data indicated that inflation rose at a slower-than-expected pace in June and European Central Bank President Christine Lagarde said that risks to inflation and economic growth were now more balanced than a few weeks earlier, as reported by The Economic Times. Traders now see the ECB hiking rates by a total of 23 basis points this year, according to LSEG data. A lukewarm US jobs report on Thursday boosted expectations that the Federal Reserve may wait until later in the year before raising rates, while global business activity reports broadly suggested a resilient economy. Modupe Adegbembo, an economist at Jefferies, noted that "compared with June, policymakers sounded noticeably less hawkish".
While European markets show promise, the STOXX 600 currently trades at a 26% discount to the S&P 500, according to LSEG data cited by Reuters. Invesco investment strategist Andras Vig highlighted Europe's attractive valuations and relatively less concentrated markets, which may appeal to investors seeking diversification beyond technology. However, European ETFs saw only $1.5 billion in inflows in the week to June 19, marking the first positive reading after 10 consecutive weeks of outflows, while US ETFs pulled in $56 billion during the same period. As reported by Reuters, this suggests money flows remain clearly tilted towards the US despite improving European fundamentals. David Morrison, senior market analyst at Trade Nation, noted that "the tech-lite European indices are back in demand, even more so given that the stocks within them trade on much lower (valuation) than those seen over in the U.S."
