Investing.com – The recent rally in the pan-European index may have fizzled out, according to analysts at Barclays, citing in part lower volatility in stock and bond prices in the region.
Enthusiasm for artificial intelligence developments and a potential interest rate cut by the European Central Bank have lifted the STOXX 600 index since the end of 2023. Despite the decline in April, the index now hovers just below its record high.
However, in a note to clients on Friday, Barclays analysts said the rally in equities in Europe was “starting to look tiresome again”.
“Positions and sentiment have recovered, earnings season is over, seasonality is becoming increasingly complex, and we have some mixed data on both growth and inflation,” the analysts wrote. “Against this backdrop, volatility in both stocks and bonds continues to fall to subdued levels, which may reflect some degree of complacency.”
They added that some equity consolidation in Europe was “logical and healthy.” European shares traded lower on Friday, tracking weakness in Asia and on Wall Street as growing concerns about persistent U.S. inflation and high interest rates dampened sentiment for risk assets.
But Barclays analysts note that the depth of the pullback in Europe could be limited by another quarter of huge gains from AI darling Nvidia (NASDAQ:).
“[E]capital markets are still in thrall to artificial intelligence. Nvidia’s numbers this week should at least help convince us that the hype is justified, analysts say.
Further support could come from better-than-expected European manufacturing activity data in recent days, they added, saying the figures could boost corporate results in the second half of 2024 and “provide support” for more cyclical stocks such as mining companies and automakers.