FTSE analysis: Could Trump disrupt record-hitting European stock markets?

Last week saw major European indices reaching record highs, with even the UK’s FTSE 100 joining the rally. In contrast, Wall Street’s benchmarks failed to break into new territory, although they still had a pretty impressive week. China’s markets remained out of favour. The upcoming week could kick off with a bang, even though Wall Street will sit Monday out due to Martin Luther King Day. Donald Trump is set to begin his second term as US President on the same day, ensuring a headline-filled start to the trading week.

Source: TradingView.com

What’s Driving Europe’s Rally?

European stocks closed out last week with strong gains, thanks to a combination of supportive factors. Global bond yields plunged after US and UK inflation data came in weaker than expected, easing market concerns. We had some strong earnings results. Meanwhile, robust economic data from China alleviated fears about the health of the world’s second-largest economy, while a ceasefire in Gaza further boosted sentiment.

These tailwinds helped propel FTSE 100 to a new record high. However, with the potential for geopolitical turbulence, the coming week will test whether this rally has staying power.

Monday’s Double Feature: Trump Returns and PBOC’s Big Call

Monday could set the tone for the week with two major events: Donald Trump’s inauguration and the People’s Bank of China (PBOC) announcing its Loan Prime Rates (LPR).

China has struggled with sluggish growth and deflation, but recent stimulus efforts seem to be bearing fruit. GDP growth for Q4 2024 hit 5.4%, its fastest pace in six quarters, with industrial production and retail sales also exceeding expectations. While the PBOC is expected to keep rates steady, given the yuan’s weakness and stock market struggles, a surprise move isn’t entirely off the table.

Trump’s return to the White House could reignite trade tensions, potentially putting pressure on Chinese exports and, by extension, global markets. European stocks, despite their recent resilience, could also feel the heat as the week unfolds.

PMI Data: A Key Test for Market Sentiment

Keep an eye on Friday, January 24, when PMI data from across the globe will roll in. For the FTSE analysis, the Eurozone figures will be especially significant.

European growth concerns have weighed on major currencies like the euro and pound, but the weaker currencies have supported the stock markets greatly amid expectations of loser polices in the year ahead. So far, risks of a major recession have been low and for that reason, stocks have neem able to ignore weakness in data. Will that change in the weeks ahead remains to be seen. The PMI data offers an early glimpse into economic health. Since purchasing managers often have the most up-to-date insights on business conditions, their sentiment is closely watched by investors.

Should we see any signs of improvement in these figures, it could provide much-needed relief for the euro, easing some of the selling pressure it has faced recently. I would imagine it would take really ugly figures to negatively impact the stock markets.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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