European markets are experiencing their strongest quarterly performance in over five years, with the pan-European STOXX 600 index closing 0.1% higher on Monday, positioning it for a 9.7% gain for the quarter. According to reports from Reuters, the index narrowly marked gains last week before closing flat on Monday. Germany's DAX rose 0.8%, while London's FTSE 100 and France's CAC 40 gained 0.2% and 0.3% respectively. Italy's FTSE MIB led gains with 0.4%, with Italian equities on track to outperform regional benchmarks fueled by substantial gains in the banking sector following a wave of fresh mergers and acquisitions over the last three months. This represents a significant milestone for European equity markets driven by multiple positive factors, with optimism surrounding artificial intelligence and de-escalation of Middle East tensions fueling the rally.
Technology stocks emerged as the primary drivers of the rally, with the sector rising 1.2% on Monday after stabilizing from its sharpest weekly fall since mid-March. As reported by Reuters, the selloff in technology stocks had pushed the sector to its sharpest weekly fall since mid-March, but Monday's recovery helped offset earlier declines. Chip stocks such as STMicroelectronics added 2.4%, with the broader European tech sector benefitting from the global AI rally and outperforming the U.S. S&P 500 tech sector. However, Europe's exposure to AI stocks remains much smaller than the United States' and Asia's, where tech-driven rallies pushed regional benchmarks to record highs several weeks earlier. According to Florian Ielpo, head of macro and multi-asset portfolio manager at Lombard Odier Investment, "For us to start upgrading European stocks, we need to start seeing AI-driven productivity have an impact on European earnings. So far, we're not there yet."
Siemens Energy shares added 5% following the AI-equipment maker's reiteration of strong demand trends during a pre-close quarterly earnings call on Monday. According to The Economic Times, the broader healthcare sector gained 0.9%, with Abivax jumping more than 20% after the drugmaker reported positive topline results for its obefazimod study. Additionally, signs of easing Middle East tensions have been a key driver this quarter as oil prices, a crucial resource for energy-deficient Europe, slipped to pre-Iran-war levels, further supporting the positive sentiment across European markets. In individual stock movements, Maersk shares rose 3% after hiking its annual earnings forecasts, while Aino Health jumped 50% after receiving a takeover offer. Crude prices edged up slightly to $72 a barrel as investors assessed shipments through the Strait of Hormuz, with a tenuous interim ceasefire prevailing between the U.S. and Iran.
Dutch digital services operator Prosus gained 2.4% after reporting an 84% rise in full-year adjusted core profit, while private equity firm Bridgepoint rose 16% after agreeing to acquire U.S. real estate investment platform Kayne Anderson Real Estate for an enterprise value of $1.39 billion. However, Heidelberg Materials fell 9.4% after the construction firm warned of a weak second quarter on a call. Deutsche Telekom slipped 5.5% after German daily Handelsblatt reported CEO Tim Höttges is actively working on plans to merge the group with T-Mobile. According to Reuters, the truce has prompted bullish outlooks from brokerages, with J.P. Morgan being the latest to lift its year-end target for European equities. Focus this week will be on the European Central Bank's Sintra conference, where speakers include Federal Reserve Chair Kevin Warsh and ECB President Christine Lagarde, with traders pricing in one more ECB rate hike of 25 basis points later this year.
