European shares closed firmly higher on Friday following better-than-anticipated business activity numbers, helping the region avoid what would have been its worst losing stretch in ten years. The Stoxx Europe 600 Index added 0.6% by the end of trading, its strongest daily performance since Aug. 4. The move came after data revealed that euro-area private-sector output unexpectedly picked up in August, buoyed by factory activity that grew at its fastest clip since early 2021.
Mining companies led the advance as metals prices climbed, while utility and energy names posted some of the weakest performances. Trading was lighter than usual for this time of year, with volumes in the benchmark running roughly 20% below their 20-day average, according to data gathered by Bloomberg.
The recent stretch has been challenging for European equities, which have posted two consecutive weekly declines as the excitement from a strong corporate earnings season fades. Investors are searching for fresh catalysts while geopolitical risks linger. Even so, the Stoxx 600 sits just 1% beneath its all-time high.
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A Bloomberg survey indicates that Goldman Sachs Group Inc. and JPMorgan Chase & Co. remain optimistic about the market's prospects. Strategists project a 10% gain for European stocks this year, which would mark a fourth straight annual advance and the longest winning run since 2015. Regional equity funds have also seen money flow in for three consecutive weeks, according to a Bank of America Corp. note referencing EPFR Global data.
The focus now shifts to possible action from the U.S. Treasury in the bond market, with the Jackson Hole economic symposium set to take place next week.
"Europe's stock market is taking a break after the strong earnings season," said Joachim Klement, a strategist at Panmure Liberum. "Investors will be looking for the Jackson Hole conference to assess how worried central bankers are about rising long-term yields."
The banking sector drew attention after Banca Monte dei Paschi di Siena SpA announced plans to acquire both Banca Generali SpA and Banco BPM SpA, with a combined price tag of €34 billion ($40 billion).
The euro-area market remains close to its record high, and major banks still see upside potential. A 10% annual gain would extend the winning streak to four years, something not seen since 2015. Positive fund flows for three straight weeks indicate that money managers remain willing to add exposure.
The real test comes next week. Markets want clarity on whether central bankers are concerned about longer-term yields and whether the U.S. Treasury will actually step into the bond market. Those answers could determine whether the rally regains momentum or the recent pullback resumes.
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