European stocks struggle

• European stocks struggle.
• Friday’s US jobs data key ahead of upcoming CPI release.
• Chinese exports and inflation highlight ongoing concerns.

An uncertain start to the week for European markets, as traders struggle to find the same optimism that dominated the Asian session. Looking at the source of this weakness, the one standout area of downward pressure has come from the defence sector, with the likes of Rolls-Royce, BAE Systems, Rheinmetall, and Thales all losing ground as the recent run higher starts to lose momentum. Nonetheless, with Putin apparently approving a massive re-ramp of the Russian navy, the military spending boom only looks set to grow over the coming years.

Kicking off a week that has half an eye on the implications of Friday’s US jobs report, there are lessened fears of a Tariff-led recession thanks to yet another payrolls beat. Interestingly, the recent inflation data has also highlighted the potential disinflationary effect of tariffs given the uncertainty it has brought to the US economy. With the Fed focused on both sides of their dual mandate, the seemingly stable nature of the US jobs market means that any notable bump in inflation this week could further dampen expectations for 2025 easing. With US-China trade talks scheduled for this week, we should have a greater degree of certainty around Fed easing and trade relations over the coming days.

Chinese trade and inflation data released overnight failed to dampen sentiment for regional stocks, with the Hang Seng bumping over 1% higher despite ongoing weakness from both exports and inflation. The Chinese are faced with a challenging task ahead, with the drop-off in exports and ongoing deflationary environment highlighting that both domestic and international consumption for Chinese products are in question. Nonetheless, the US decision to focus this week’s trade negotiations on the supply of rare earth materials does highlight the fact that the Chinese have managed to find the Donald Trump’s Achilles heel. With talk of US firms moving operations to China in a bid to secure the supply of these key materials, the urgency in securing rare earth materials which could increase the likeliness of a trade deal between the world’s two largest economies.