European Stocks Extend Gains as Fed Rate Cut Bets Outweigh U.S. Shutdown Concerns

European markets advanced on Friday, set to close the week with solid gains, as expectations of further Federal Reserve easing encouraged risk appetite despite the ongoing U.S. government shutdown.

At 03:05 ET (07:05 GMT), Germany’s DAX rose 0.4%, France’s CAC 40 added 0.4%, and the U.K.’s FTSE 100 gained 0.3% after hitting an all-time high earlier in the week. The pan-European Stoxx 600 notched a fresh record on Thursday, marking its fifth consecutive day of gains and on track for a more than 2% rise this week.

Fed Easing Outlook Boosts Sentiment

Investors largely brushed aside political turmoil in Washington, where the U.S. government shutdown entered its third day, focusing instead on the Federal Reserve’s path for interest rates. The shutdown halted the release of official economic data — including September’s nonfarm payrolls — but recent weak labor indicators strengthened expectations for at least two more Fed rate cuts this year, beginning with a likely move in late October.

Historical precedent has also reassured investors, as prior shutdowns have had minimal long-term impact on equities. Still, U.S. Treasury Secretary Scott Bessent warned on Thursday that prolonged disruption could hurt growth.

Eurozone PMI Data in Focus

In Europe, attention turned to upcoming September purchasing managers’ index (PMI) figures, with investors looking for clues on whether the region’s economy is withstanding the drag from new U.S. tariffs. The HCOB eurozone composite PMI is expected to show modest expansion, offering some comfort after months of uneven data.

Meanwhile, inflation in the euro area ticked higher to 2.2% in September, up from 2.0% in August, though the European Central Bank is widely anticipated to leave interest rates unchanged for a third straight meeting on October 30.