European Stocks Advance on AI Rally, Poised for Fourth Monthly Gain

European equities advanced on Friday, putting the region's main benchmark on course for its fourth consecutive monthly gain as a global rebound in technology stocks fueled by artificial intelligence optimism boosted investor sentiment.

The pan-European STOXX 600 index rose 0.8% in early trading, bringing its gain for July to 1.3%, according to market data. Major regional bourses followed the trend, with Germany’s DAX climbing 0.8%, France’s CAC 40 gaining 0.5%, and Italy's FTSE MIB advancing 0.8%.

Tech Sector Leads Broad Market Gains

Friday's risk-on mood was primarily driven by a resurgence in the global AI trade, following an overnight rally on Wall Street. Strong quarterly results and robust capital expenditure outlooks from U.S. technology giants Microsoft and Amazon helped to alleviate market concerns over high AI-related costs and stretched valuations, sparking a rally in European tech and semiconductor stocks.

The gains capped a resilient month for European markets, which navigated geopolitical tensions in the Middle East, volatile energy prices, and uncertain monetary policy signals from major central banks. Analysts noted that a solid second-quarter earnings season, where many consumer, banking, and defense firms demonstrated strong pricing power, helped shield benchmarks from broader economic headwinds.

Inflation Data Looms

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Market focus is now shifting to the upcoming flash Eurozone Consumer Price Index (CPI) reading for July. Economists anticipate a slight uptick in the headline inflation rate, a view supported by state-level German data released Thursday that signaled persistent price pressures.

An unexpectedly high inflation figure could complicate future interest rate decisions for the European Central Bank. Investors will be scrutinizing the data for indications of whether the four-month equity rally has the momentum to continue into the second half of the year.

Corporate Movers

On the corporate front, individual earnings reports produced significant stock movements:

• Crédit Agricole shares jumped 5% after the French lender's second-quarter profit exceeded forecasts, driven by strong performance in its retail and investment banking divisions.
• Ferrari gained after the luxury automaker raised its full-year earnings guidance, citing robust demand and pricing power.
• Siemens Healthineers fell 3.3% after the medical technology firm cut its full-year revenue forecast, pointing to supply chain issues and slower orders.
• IAG, the owner of British Airways, saw its shares decline 5% after reporting a sharp drop in second-quarter profit.