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European equities were largely flat on Friday as investors stepped back after a dense week of central-bank decisions and macro headlines, while the major indices still looked set to close the week in positive territory.
By early trade, Germany’s DAX inched up 0.1%, while France’s CAC 40 and the UK’s FTSE 100 each slipped 0.1%. On the week, the tone remained constructive: the DAX was tracking a modest gain of around 0.2%, while the CAC 40 and FTSE 100 were on pace for gains above 1%, reflecting improving risk appetite after policy meetings.
Central banks: support, but not a clear “green light”
Markets were digesting the European Central Bank’s decision to keep rates unchanged at 2%, paired with a more optimistic growth message. The ECB upgraded its projections and pointed to resilience in activity—highlighting 0.3% growth in Q3, mainly from consumption and investment—helping underpin the week’s positive bias.
Still, the optimism wasn’t uniform. German consumer confidence deteriorated sharply into year-end, with the GfK consumer sentiment index falling to -26.9 for January from -23.4, a reminder that domestic demand momentum in Europe remains fragile and highly sensitive to inflation, rates, and employment expectations.
UK: rate cut delivered, but the “what next?” question dominates
In the UK, the Bank of England’s rate cut was widely expected, yet markets are still debating the pace of easing in 2026. Policymakers’ caution around wage dynamics and structural inflation pressures continues to limit how aggressively the BoE can pivot, even as softer consumer indicators (like weaker retail activity) hint at demand fatigue.
Sweden and Norway’s central banks also held rates, broadly in line with expectations—adding to the theme that Europe is moving carefully: easing where needed, but avoiding any messaging that could reignite inflation expectations.
Geopolitics and fiscal signal: EU backs Ukraine with joint borrowing
A notable macro-political development was the EU’s approval of a €90 billion aid package over two years for Ukraine’s defense, funded via joint borrowing rather than deploying frozen Russian assets. From a market perspective, this is significant because it reinforces Europe’s willingness to use collective fiscal tools—supportive for strategic spending continuity, but also part of the broader debate about debt issuance and long-term budget constraints.
Corporate movers: cautious consumer signals show up in earnings
On the company side, the tone was mixed:
- WH Smith cut its full-year profit outlook after weaker trading profit offset revenue gains—another signal that consumer-adjacent names remain exposed to spending softness and margin pressure.
- Coty sold its remaining stake in Wella to KKR for $750 million, retaining participation rights in any future exit—an example of portfolio reshaping and liquidity management.
- Adidas and Puma weakened after Nike reported disappointing China sales and margin pressure, reviving concerns about demand momentum in a key global consumer market and the knock-on effects for the sector.
Market takeaway
Europe is ending the week with solid index gains, supported by central banks that are no longer tightening and by a slightly better growth narrative from the ECB. But beneath the surface, consumer confidence (especially in Germany), wage-driven inflation risks (especially in the UK), and global demand uncertainty (China) continue to cap upside and keep markets selective rather than broadly euphoric.
