Europe Markets Weekly — 2026-07-03

Market Snapshot

• STOXX 600: Down 0.4% to 639.31 on Wednesday
• DAX: Up 0.2% to 25,040, supported by defence stocks
• FTSE 100: Down 0.2%
• CAC 40: Up 0.3% in early trading

Key Drivers

• Eurozone Inflation Collapse Shifts Rate Expectations: Eurozone inflation dropped to 2.8% in June 2026 from 3.2% in May, with core inflation also declining. The sharper-than-expected cooling, particularly in Germany, France, and Italy, has reduced immediate pressure on the ECB to raise rates further, with investors now pricing in more caution from the central bank.

• Euro Weakens on Rate-Cut Signals: The euro has come under pressure as cooling inflation reduces expectations for additional ECB tightening. EUR/USD traded near 1.1410, with EUR/GBP declining as market participants reassess the timeline for further rate hikes.

• Mixed Sentiment After Best Quarter Since 2020: The STOXX 600 capped its strongest quarter since 2020 with gains exceeding 10%, powered by AI-fueled tech strength. However, the index remains vulnerable as it hovers virtually unchanged in early week trading, reflecting investor caution after such a strong rally.

Geopolitics & Energy

• Natural Gas Extends Rally on Heat Wave and Middle East Risk: European natural gas prices rallied as a summer heat wave combined with renewed geopolitical jitters from U.S.-Iran tensions overshadowed earlier supply relief signals. Brent crude topped $73 per barrel amid concerns over Strait of Hormuz volatility, keeping energy stocks—particularly defence equities like Rheinmetall, which jumped 6.1%—in favour.

• Russian Gas Still Flowing Despite EU Phase-Out: Despite EU efforts to phase out Russian energy, liquefied natural gas from Russia continues to arrive in Europe, particularly through Spain, France, Belgium, and the Netherlands, while pipeline deliveries remain concentrated in Hungary, Slovakia, and Greece. The ECB flagged potential economic ripple effects from Gulf supply disruptions beyond energy prices alone.

What to Watch Next Week

• Eurozone manufacturing and services PMI data to signal economic momentum
• US jobs data and Fed policy signals—continued US employment weakness may support risk appetite
• Corporate earnings season ramp-up with major European bank and industrial results
• Oil price volatility amid Middle East tensions and Hormuz shipping concerns