European stock markets have experienced a rally, reaching six-month highs, driven by optimism surrounding a potential peace deal between Russia and Ukraine.
Driving factors
- Potential peace deal:Â Hopes for a resolution to the ongoing conflict are boosting investor sentiment and driving up stock prices.
- Trump’s involvement:Â President Trump’s engagement in the peace process, including discussions with Ukrainian President Zelenskiy, further fuels expectations for a breakthrough.
- Rebounding European economy:Â Europe’s equity markets are also benefiting from recovering economic indicators, indicating a potential end to the slowdown.
- Attractive Valuations:Â Despite the recent rallies, European markets still appear more attractively valued compared to their US counterparts.
- Anticipated ECB rate cuts:Â Expectations of potential interest rate cuts by the European Central Bank (ECB) could further stimulate growth and support equity markets.Â
Impact on different sectors
- Defence stocks:Â Defence stocks, which saw significant gains during the conflict, are experiencing a decline as de-escalation could reduce the demand for military assets. Shares of BAE Systems, Rheinmetall, and Thales have dropped.
- Oil prices: Weakening oil prices indicate an easing of concerns and potential for increased supply, according to The Guardian.
- Retail-linked stocks:Â Hopes of a peace deal are boosting retailers, according to FXEmpire.Â
Remaining cautions
- Negotiation challenges:Â Markets remain cautious as the most challenging negotiations, particularly over territorial issues, are still ahead.
- Geopolitical risks:Â Escalating trade tensions and persistent supply chain disruptions continue to pose potential risks to the European market.
- Jackson Hole symposium:Â Investor caution ahead of the upcoming Jackson Hole Symposium might be offsetting some of the positive momentum.Â
