A tense and divided morning is unfolding across European markets, as a resilient month-long rally runs headlong into its final and most formidable obstacle: a transatlantic deluge of inflation data.
After a turbulent week dominated by political drama and corporate intrigue, investors are now bracing for a day of reckoning that could either validate the recent gains or shatter the fragile calm.
Futures data from IG paints a picture of a market on a knife’s edge, with London’s FTSE 100 pointing to a slightly higher open while Germany’s DAX and France’s CAC 40 are tracking declines.
This indecision is a direct reflection of the high-stakes economic prints due today from France, Spain, Italy, and Germany.
A tale of two central banks
The true focal point, however, lies across the Atlantic. Investors will be laser-focused on the release of the personal consumption expenditures (PCE) price index, the US Federal Reserve’s preferred measure of inflation.
The report comes just one week after Fed Chair Jerome Powell delivered a speech that was widely seen as dovish, a pivot that sent traders scrambling to price in a September interest rate cut.
According to CME’s FedWatch tool, those odds now stand at a commanding 85 percent. Today’s PCE data will be the ultimate test of that conviction.
A resilient rally on shaky ground
This day of economic testing follows a chaotic week for European equities.
The markets have been swayed by a potent mix of French political instability, unsettling questions over the Fed’s independence in the US, and the mixed verdict from chip giant Nvidia’s bellwether earnings report.
Despite this recent turbulence, the broader regional Stoxx 600 index is, remarkably, still on track for a gain of nearly 1.4% in August.
If it holds, this would mark its first back-to-back positive month since the start of the year, a testament to the underlying resilience of the market.
A toast to trade relief
Adding a positive note to the complex picture are the tangible benefits now emerging from the recent EU-US trade deal.
The French spirits maker Remy Cointreau announced it now expects the impact on its operating profit from US tariffs to be 20 million euros, a significant downward revision from its previous estimate of 35 million euros.
The relief comes as the baseline duties were set at a more manageable 15 percent.
In a sign of further progress, the EU formally proposed on Thursday to remove its tariffs on US industrial goods, a key White House condition for lowering its own punishing rates on European automobiles.
But even as these trade tensions ease, the market’s fate now rests in the hands of the inflation data, a final, crucial hurdle in a long and volatile month.
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