European shares closed slightly higher on Monday, with the STOXX 600 rising 0.17% to 551.07, supported by gains in defence, aerospace, and healthcare equities.
Key drivers in European markets
European markets saw modest gains driven by strength in key sectors, though gains were capped by rising bond yields and trade policy uncertainty. Below are the main factors influencing Monday’s performance.
Defence and aerospace boost
Defence stocks advanced following reports that Europe is preparing detailed plans to send troops to Ukraine. Rolls-Royce, Rheinmetall, and Hensoldt were among the top performers, while BAE Systems gained after securing a significant UK-Norway frigate agreement.
Healthcare sector strength
The healthcare index was lifted by Novo Nordisk, which rallied after new real-world STEER study data confirmed its obesity drug Wegovy (semaglutide) 2.4 mg offers greater heart-protective benefits than rival therapies from Eli Lilly. Continuous Wegovy users saw a 57% lower risk of heart attack, stroke, and death, although the study had a short follow-up period and some limitations.
Headwinds from bond yields and trade policy
Long-dated eurozone bond yields climbed, with Germany’s 30-year yield touching a 14-year high before easing slightly, which pressured utility stocks.
A US court ruling upheld most of Donald Trump’s tariffs until mid-October, maintaining trade policy uncertainty, despite the ruling declaring most of them unlawful.
Goldman Sachs raised its 12-month STOXX 600 target to 580, citing stronger growth momentum.
Corporate and economic developments
Orsted gained after securing backing from Equinor for its $9.4 billion rights issue.
Eurozone manufacturing activity expanded in August for the first time since mid-2022, signaling improving business conditions.
Investors now look ahead to US labour market data later this week, which could shape expectations for the Federal Reserve’s September policy decision.
Global market update
Asian stocks traded cautiously on Tuesday as investors weighed US tariffs and interest rate expectations:
- Nikkei rose 0.3% in Japan
- KOSPI outperformed with a 0.7% gain in South Korea
- Chinese markets slipped on weak PMI data
- ASX 200 in Australia declined 0.3% ahead of GDP figures
US market outlook
US equity futures were steady overnight as markets reopened following the holiday weekend. September’s historically weak trend weighed on sentiment.
In August, the Dow, S&P 500, and Nasdaq all posted modest gains.
The US dollar index climbed above 97.8, while the euro slipped to 1.1695. Despite pressure from rising bets on Fed rate cuts, the greenback held firm. Traders are now focused on Friday’s nonfarm payrolls data, which could influence interest rate expectations.
Commodities
Oil prices held steady in Asian trade on Tuesday, with Brent at $68.33 and WTI at $64.81 per barrel. Supply risks from Russia-Ukraine airstrikes were balanced by increasing OPEC+ output. Traders also looked ahead to the upcoming OPEC+ meeting and the US jobs report, which could influence expectations for rate cuts and commodity demand.
Gold prices hit a record high in Asia, with spot gold reaching $3,508.54 per ounce. The surge was supported by persistent bets on US interest rate cuts and uncertainty over President Trump’s trade tariffs. A weaker dollar further boosted the yellow metal, with markets pricing in an 85% chance of a September Fed rate reduction.
Equities on the move
- China: Margin financing hit a record 2.29 trillion yuan ($320 billion), reflecting increased leveraged bets amid a liquidity-fueled rally in AI and tech stocks. Analysts warn this could raise volatility risks.
- BAE Systems: Secured Norway’s largest military purchase, delivering Type 26 frigates starting in 2030. The deal enhances NATO security and includes industrial cooperation with Norwegian firms.
- Novo Nordisk: Shares rose nearly 2% after STEER study data showed Wegovy reduced major cardiovascular risks by 57% for continuous users.
- Nestlé: Dismissed CEO Laurent Freixe for failing to disclose a romantic relationship with a subordinate. Philipp Navratil, former head of Nespresso, was appointed as his successor.
- Tesla: European sales fell for the eighth consecutive month in August, with steep declines in France, Denmark, and Sweden. Competition from Chinese EVs, ageing models, and Elon Musk’s politics contributed to the slump.
- Audi: Plans to boost long-term annual sales to over 2 million vehicles, up 20% from 2024, under a new strategy expected later this year. The plan emphasizes stronger US sales despite high import tariffs. For 2025, Audi targets 1.7–1.8 million vehicles after last year’s 11.8% decline.
- Alibaba: Mizuho raised its price target to $159 and maintained an “outperform” rating, citing strong core commerce, cloud performance, and AI-driven growth. Commerce revenue grew 10% in Q2, and Taobao’s monthly active users rose 20%.
- Lam Research: Downgraded by Morgan Stanley to “underweight,” noting that recent outperformance may not continue into 2026. Slower NAND demand and China’s cooling market are expected to limit upside. The firm issued a $92 price target.
- Société Générale: Upgraded to “buy” from “hold” by Deutsche Bank, which raised its price target to €63. Analysts cited improving profitability, a CET1 ratio above 13%, and rising capital returns. BNP Paribas remains the preferred pick due to greater diversification.
- Tesco: J.P. Morgan placed the stock on Positive Catalyst Watch, reiterated its “overweight” rating, and raised the price target to 450p. Analysts highlighted stronger-than-expected earnings momentum and forecast operating profit of £3.2 billion. EPS upgrades for 2026 and 2027 were also issued.
Upcoming economic data and events
Today’s focus will be on the US Manufacturing PMI and ISM Manufacturing PMI, offering fresh insight into industrial activity and business confidence. The earnings calendar remains light.
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