Market Overview

European stock markets showed cautious trading with mixed performances amid ongoing geopolitical tensions and economic data releases. The STOXX 600 index dipped slightly by 0.2% after reaching historic highs earlier in the week. German stocks gained about 0.4%, while markets in Spain and Italy remained flat after recent all-time highs. Defensive sectors rallied, reaching record highs for five consecutive days, while some companies like AB Foods faced sharp declines due to profit warnings and regulatory scrutiny.

Geopolitical concerns persist, especially related to Venezuela, where the US has seized oil tankers and plans to manage oil revenues, impacting energy stocks such as Shell and BP, which saw declines.

Key Economic Data and Events

• German Factory Orders: Surged unexpectedly by 5.6% in November 2025, marking the third consecutive month of growth, driven by strong domestic and Eurozone demand, especially for metal products and military vehicles.
• Eurozone Inflation: Inflation cooled to 2.0% in December 2025, aligning with the ECB's target, mainly due to falling energy costs and slower price increases in services and manufactured goods. Core inflation improved to 2.3%, a four-month low.
• German Retail Sales: Fell by 0.6% in November 2025, the first decline since August, largely due to a drop in food sales despite growth in online shopping.
• Upcoming Data: Eurozone Producer Price Index (PPI) and unemployment rate for November are expected to show modest changes, unlikely to alter ECB policy. US initial jobless claims and balance of trade data are also awaited.

Currency and Commodities

The US dollar strengthened for the third consecutive day, reaching 98.80, as investors awaited key US employment data. The Euro weakened to around $1.1670. Gold prices declined by about 0.4% to approximately $4,435 per ounce, pressured by the stronger dollar, while silver and palladium also faced losses. Oil prices stabilized after recent declines, influenced by the US agreement to import Venezuelan crude oil, expected to increase supply.

Technical Market Insights

Indices: The FTSE 100 breached the psychological 10,000 mark but is experiencing volatility with support levels at 9,973 and 9,943. The German DAX (DE30_EUR) closed at 25,246.2 with a short-term sell signal, though technical indicators show mixed long and short signals across various moving averages.

Currency Pairs: EUR/USD is trading cautiously above the 50-day EMA, with mixed technical signals. EUR/GBP shows a slight bounce from the 200-day EMA, seen as a potential selling opportunity if resistance near 0.8750 holds.

Bonds: German 10-year Bund (DE10YB_EUR) closed at 127.806 with a buy signal, though short-term technicals show mixed momentum.

Market Sentiment and Outlook

Investor sentiment remains cautious amid mixed economic signals and geopolitical uncertainties. The market is closely watching upcoming US employment data and Eurozone inflation reports for direction. Defensive stocks continue to attract interest, while energy and commodity sectors face pressure from geopolitical developments and supply changes.

Overall, the European market is in a state of flux, balancing positive economic surprises with caution over global risks and policy outlooks.