Europe Markets Weekly — 2026-07-31

Market Snapshot

• STOXX 600: +0.46% weekly gain
• DAX: −0.01% (flat to down 0.01%)
• FTSE 100: +0.34%
• CAC 40: −0.60%

Key Drivers

• Eurozone GDP Beats Forecast; Inflation Rises Above Expectations — Eurozone GDP grew 0.4% quarter-on-quarter in Q2 2026, exceeding analyst forecasts for 0.1% and steering the region clear of technical recession. However, Germany's inflation reached 2.8% year-over-year in July, surpassing the 2.7% forecast, with month-over-month CPI rising 0.8%, above the 0.7% expectation. This inflation surprise complicates the ECB's outlook ahead of its September 10 rate decision.

• Fed Holds Rates Steady, Triggering Euro Zone Bond Sell-Off — The Federal Reserve held U.S. interest rates unchanged on July 30, yet this decision sparked a sharp sell-off in U.S. Treasuries that spilled into eurozone government bond markets. Euro zone bond yields climbed as investors recalibrated expectations for future rate cuts and reassessed inflation dynamics across major economies.

• Earnings Season Peak Supports Market Sentiment Despite Tech Weakness — The busiest day of European earnings season saw upbeat results from industrial and financial firms, including Schneider Electric, Rolls-Royce, and major banks, offsetting weakness in healthcare (Sanofi slumped) and consumer goods. Companies on the STOXX 600 are expected to report earnings growth of 17.3% in Q2, though revenue growth remains modest at around 0.2% aggregate.

Earnings & Corporate

• Broad Earnings Growth but Revenue Weakness Persists — STOXX 600 companies posted a 75% earnings beat rate relative to expectations in Q2 2026, though the magnitude of upside surprises trails historical averages. Revenue beat rate stands at only 23%, with aggregate sales surprise at −0.2% mean and +0.2% median, signaling limited top-line expansion despite strong bottom-line results.

Geopolitics & Energy

• Oil Prices and Middle East Tensions Support Commodity Sector — European miners and energy stocks led gains Wednesday as physical oil market fundamentals remained tight and geopolitical risks in the Middle East persisted. The rally benefited commodity-linked sectors despite longer-term concerns that current energy price levels may not fully reflect underlying supply constraints.

• EU Energy Strategy Under Strain; Short-Term Fixes Dominate — Faced with another summer of elevated energy costs, EU governments continue deploying short-term crisis measures rather than addressing structural energy security. The European Commission recommended delaying penalties under methane emissions rules for three years as energy security concerns mount, reflecting the difficult balance between climate ambitions and economic resilience.

1 sources

moderndiplomacy.eu

moderndiplomacy.eu

What to Watch Next Week

• ECB September Rate Decision Preparation — Markets now assign a 79% probability to an ECB rate hike in September, contingent on further inflation data. Ongoing wage growth acceleration through early 2027 will be monitored closely as officials weigh labor market tightness against disinflation progress.

• U.S. Tech Earnings Continuation — Major U.S. technology company earnings releases will drive sentiment across Atlantic, with ripple effects on European tech sector valuations and overall risk appetite.

• Energy Price Volatility — Oil and gas market developments, particularly any Middle East escalation or OPEC production signals, will remain key drivers for eurozone inflation expectations and sector rotation patterns.