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European stocks are gaining strength as investors look beyond higher interest rates and focus on improving macro signals. As of the second quarter, the Euro Stoxx 50 gained around 10 percent, marking its best quarterly performance since late 2020. The rally matters because it came despite a 25 basis point European Central Bank rate increase and amid geopolitical uncertainty. European equities are signalling that cooling inflation expectations may now matter more than the latest policy tightening.
Fiona Cincotta, StoneX Senior Market Analyst, tracks global macro and equity market developments across major financial markets. Her perspective connects European Central Bank policy, eurozone inflation and sector rotation, making her analysis especially relevant to this shift in European equity sentiment.
European stocks are proving resilient even as the European Central Bank continues to tighten monetary policy. Cincotta notes that "the rally has come despite the European Central Bank raising interest rates by 25 basis points", showing that investors are not treating the rate increase as the dominant market signal. European equities are being repriced around broader confidence rather than policy fear alone. This shift suggests that investors may be placing more weight on earnings exposure, sector rotation and inflation relief than on the headline rate decision.
Eurozone inflation is changing the way investors interpret European Central Bank policy risk. Cincotta says "we've had eurozone inflation data in today. It's cooler than expected suggesting that aggressive ECB rate hike expectations are now receding". As a result, European stocks are benefiting from the perception that the most forceful phase of monetary tightening may be passing. That matters for equity valuations because lower expected rate pressure can support risk appetite, particularly when market leadership is broadening beyond artificial intelligence and technology shares.
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--- Written by Frédéric Guétin, StoneX TV Producer
--- Expert: Fiona Cincotta, StoneX Senior Market Analyst
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