Pan‑European benchmark hits all‑time high as the U.S. inflation slowdown and signs of easing U.S.–China trade tensions boost investor sentiment

Europe’s equity markets delivered a striking performance as the pan‑European STOXX 600 index reached record highs last week, propelled by encouraging U.S. inflation data and mounting hopes that trade tensions between the U.S. and China may be turning a corner.

Market momentum and key drivers
The STOXX 600 closed up around 0.2 % on Friday, continuing the upward trajectory that has seen the index hit new peaks. Investors pointed to a softer‑than‑expected rise in U.S. consumer prices in September, a development that has bolstered expectations of earlier interest‑rate cuts by the Federal Reserve. In parallel, optimism around a forthcoming meeting between U.S. President Donald Trump and his Chinese counterpart — along with the possibility of easing the prolonged U.S.–China trade standoff — added fuel to the rally.

Sector highlights and earnings support
Several sectors contributed disproportionately to the upswing. Industrial stocks led the charge, rising approximately 0.7 % on the day, while energy shares also logged strong gains in response to renewed geopolitical developments. For example, Swedish defence‑group Saab AB saw its shares climb by over 6 % after raising its full‑year organic sales growth forecast. Meanwhile, banking heavyweight NatWest Group rose nearly 5 % after reporting stronger‑than‑expected third‑quarter profit and upgrading its 2025 outlook. That said, it wasn’t all smooth sailing — certain consumer‑goods firms faced pressure, exemplified by a near 4 % slide in fashion‑group Kering S.A. after a rating downgrade.

The trade and inflation nexus
Markets are increasingly interpreting the combination of easing inflation and thawing trade tensions as a green light for future growth — especially important for Europe, where export‑oriented economies remain sensitive to global trade flows. “With rate expectations in the U.S. having such an outsized impact on financial markets globally, the rally across Europe is largely an effect of what we saw in the U.S.,” observed one strategist. The better‑than‑expected U.S. inflation print has raised hopes that the Federal Reserve may pivot sooner than markets previously anticipated — a scenario that generally supports equities via lower discount‑rates and stronger earnings valuations. At the same time, the confirmation that the U.S. President will meet his Chinese counterpart next week, combined with the looming deadline for proposed U.S. tariffs on Chinese goods, has elevated optimism that trade friction may ease.

Regional highlights: UK and beyond
In the UK, the FTSE 100 also closed at a fresh record high, rounding off a strong week for London equities. In Ireland, financial and building‑sector stocks helped the market end the week in positive territory, with insurers and home‑builders among the winners.

Cautionary notes and what to watch
Despite the upbeat tone, analysts caution that headwinds remain. Notably, the earnings beat rate among STOXX 600 companies is slightly below the long‑term average for a quarter, suggesting that optimism may be outpacing fundamentals. On the trade front, while meeting signals between the U.S. and China are positive, tariffs remain a live issue — and the global trade environment remains fragile. Moreover, inflation remains a key variable — both in the U.S. and in Europe. Should price pressures re‑emerge, the potential for central‑bank tightening may yet weigh on markets.

Outlook for the week ahead
As markets open this Monday, the focus will shift to upcoming economic releases — particularly euro‑zone business‑activity data and retail‑sales numbers — as well as further corporate earnings. The trade meeting between the U.S. and China will also be closely watched for any tangible commitments or indications of de‑escalation. If the positive threads continue — softer inflation, corporate earnings surprises, easing trade tensions — then the rally in European equities may have further room to run. If not, the recent highs could be vulnerable to a pull‑back.

Conclusion
The record high reached by the STOXX 600 reflects a convergence of favourable signals: lower inflation in the U.S., the prospect of easing trade tensions, and improved earnings momentum in Europe. While risks persist, the market mood is decidedly brighter than it has been for months — offering a cautiously optimistic backdrop for investors as Europe enters the final quarter of 2025.