European stock markets started the trading week with modest gains on Monday, with the pan-European Stoxx 600 index edging higher as a newly effective trade deal between the United Kingdom and the United States provided a positive catalyst.
This comes amid a broader trend that saw European equities dramatically outperform their US counterparts during the first half of the year.
In early dealings, the pan-European Stoxx 600 index was up 0.1%, building on gains from the previous week.
Sector performance was mixed, with autos down 0.6% and banks slipping 0.25%, while financial services gained 0.6%.
A key focus for investors is the official start of the trade deal between the UK and the US, which was brokered last month and came into effect this morning.
Key details of the agreement include a reduction in British car export tariffs from 27.5% to 10%, along with the complete elimination of duties on aerospace goods such as engines and aircraft parts.
Companies expected to benefit from this deal were trading slightly higher, having already posted strong gains when the deal was first announced.
These include engine-maker Rolls-Royce, which was up 0.6%, and German automaker BMW, up 0.26%.
However, Aston Martin shares were down a slight 0.1%.
The UK’s FTSE 100 was up 0.1%. It’s worth noting that the UK has still been left with a baseline 10% tariff, and an outlined agreement to put zero tariffs on core steel products has not yet been finalized.
In currency markets, the British pound, which last week hit an almost four-year high against the US dollar, continued its strong run, up 0.1% against the greenback at 7:39 a.m. in London to trade around $1.373.
In economic news, the UK’s statistics agency on Monday confirmed that economic growth for the first quarter of 2025 was 0.7%, in line with its previous estimate.
A transatlantic shift: Europe’s dramatic market comeback
The positive start to the week reinforces a powerful trend seen throughout the first half of 2025: a dramatic outperformance of European markets compared to their US peers.
European stocks outperformed US equities by the biggest margin on record in dollar terms during the first six months of the year, a clear sign that the region’s markets are staging a significant comeback after more than a decade in the doldrums.
This rebound is not confined to stocks.
The euro has surged 13% against the dollar in the six months through June.
Meanwhile, the chaotic rollout of US tariffs has wiped some of the shine off US Treasuries, with German bunds outperforming them since April, even as the German government prepares to issue more debt.
Assets in emerging European markets like Poland and Hungary are also rallying sharply.
This shift is being driven by a reallocation of global capital. Investors are reportedly slowing their purchases of US assets and shifting more money to Europe.
This is happening amidst concerns that President Donald Trump’s program of tariffs and tax cuts will negatively impact US corporate earnings, stoke inflation, and widen the budget deficit.
Europe has become the major beneficiary of this capital rotation, as governments there boost spending while the European Central Bank has been slashing interest rates.
“We’re seeing extremely strong demand for European assets, particularly from the US,” Erik Koenig, who runs the EMEA equity sales desk at Bank of America Corp. in London, told Bloomberg.
While Europe has faced challenges in the past that may have held its markets back, there’s now a growing confidence in its long-term potential.
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