European equity markets continued their winning streak for a third session, supported by strong corporate earnings and a landmark agreement between the United Kingdom (UK) and the European Union (EU). This new deal aims to reset relations five years after Brexit, addressing trade, energy, defense security, travel, and fisheries.
The agreement removes routine inspections on UK animal and plant products entering the EU, easing supply chain constraints and potentially lowering food prices in the UK.
It also extends reciprocal fishing rights for EU vessels in UK waters for 12 years and allows UK participation in a €150 billion European defense procurement program, benefiting British defense companies.
Additionally, linking the UK and EU Emissions Trading Systems will enhance energy security and prevent carbon tariffs on UK businesses.
Economic Data on Investors’ Radar
Key economic releases this week include the UK inflation report for April 2025, expected to show headline inflation rising to 3.3% year-on-year from 2.6%, and core inflation increasing to 3.6% from 3.4%. These figures suggest the Bank of England is likely to hold interest rates steady before a possible 25 basis point cut in September.
Flash purchasing managers’ indices (PMIs) for the UK and EU, due May 22, will provide further insight into economic momentum.
Market Technicals: FTSE 100 and DAX 40
The FTSE 100 rebounded strongly from its April low of 7544, closing within 2.3% of its March record high of 8908. Despite overbought conditions, short-term consolidation near the 200-day moving average at 8369 is expected. Dip buyers may target a retest of the record high.
Germany’s DAX 40 recently broke above a double top at 23,746, hitting a new high of 23,935. Given current levels, a cautious approach favoring buying on pullbacks is recommended.
Geopolitical Risks Remain
A recent call between US President Trump and Russian President Putin failed to produce a ceasefire deal, though Russia and Ukraine agreed to resume talks. This ongoing geopolitical uncertainty could influence market sentiment.
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