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European Stocks Trade Mixed as Investors Eye Key Inflation Data

European stock markets showed mixed performance on Tuesday as U.K. markets resumed trading after a bank holiday. Investors are keenly awaiting key inflation data from both Europe and the U.S., which could offer insights into future monetary policies.

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As of 03:10 ET (07:10 GMT), Germany’s DAX index edged up by 0.2%, while France’s CAC 40 slipped by 0.1%, and the U.K.’s FTSE 100 also fell by 0.1%.

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Key Inflation Data in Focus

The FTSE 100 lagged behind on Tuesday, returning to activity after the late May bank holiday. However, overall market sentiment remained positive, bolstered by dovish remarks from European Central Bank (ECB) officials.

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ECB policymaker Francois Villeroy de Galhau suggested in a Monday interview that the ECB has substantial leeway for rate cuts and that current market expectations for long-term easing are reasonable. Meanwhile, ECB Chief Economist Philip Lane emphasized that future interest rate cuts would be adjusted based on the strength of underlying inflation and demand.

With the ECB’s interest rate cut in June almost a certainty, investors are now speculating about subsequent moves. The upcoming eurozone inflation report, scheduled for release on Friday, is expected to show a slight increase to 2.5% year-on-year in May from 2.4% in April, with core inflation remaining steady at 2.7%.

In the U.S., the Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index, is also set to be released on Friday. This data will be crucial in determining the Fed’s stance on interest rates for the remainder of the year. Additionally, several Federal Reserve officials, including Governor Michelle Bowman and Cleveland Fed President Loretta Mester, are scheduled to speak throughout the week, potentially providing further insights into monetary policy.

Uptick in European Equity Flows

The corporate earnings season has mostly concluded, with few significant reports expected. However, there has been a notable increase in flows into European equities recently. Analysts at Goldman Sachs highlighted this trend, pointing out that Europe has seen minimal net inflows since 2020, suggesting potential for further investment increases in the region.

Goldman Sachs analysts noted, “We think there is room for flows to pick up,” reflecting a more optimistic outlook for European markets that have been relatively underfavored in recent years.

As investors navigate the mixed signals and await crucial inflation data, the European stock markets remain poised for potential shifts depending on upcoming economic indicators and central bank communications.

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