European Stocks Steady as Oil Eases, Markets Brace for Central Banks and Tech Earnings

European equities edged higher on Monday, attempting a recovery from last week's losses as a pullback in crude oil prices eased immediate inflation concerns. Investor sentiment remained cautious, however, ahead of a critical week featuring monetary policy decisions from major central banks and quarterly earnings from U.S. technology giants.

A Cautious Rebound

The pan-European STOXX 600 index was largely steady, finding its footing after sliding more than 1% last week. Major regional bourses posted modest gains:

• Germany's DAX rose 0.4%.
• France's CAC 40 was up 0.6%.
• Italy's FTSE MIB gained 0.5%.

In contrast, London's FTSE 100 dipped 0.1%, weighed down by energy majors BP and Shell, which are scheduled to report earnings this week.

Oil Retreat Eases Inflation Fears

A key driver for Monday's tentative optimism was a retreat in energy markets. Crude oil futures eased by about 1% following reports of diplomatic efforts involving Qatar and Iran to de-escalate tensions in the Middle East.

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This offered some respite for investors after international benchmark Brent crude surged 6.2% last week, its highest weekly settlement since mid-2022. The pullback in oil, a major input for inflation, provides some breathing room for energy-importing European economies.

Central Banks and Tech Earnings in Focus

Despite the relief, market participants are on high alert for a dense economic calendar. The U.S. Federal Reserve, the European Central Bank, and the Bank of Japan are all scheduled to hold policy meetings this week. While no immediate rate changes are expected, money markets are pricing in future tightening to combat persistent inflation. Interest-rate swaps imply an 80% probability of a 25-basis-point Fed rate hike in December.

Attention is also fixed on the U.S. corporate earnings season, with results due from tech behemoths Alphabet, Microsoft, and Amazon. Investors will scrutinize management commentary on capital expenditure (capex), particularly for artificial intelligence. This guidance is seen as a crucial bellwether for the outlook of European semiconductor equipment suppliers like ASML and ASM International.

French Bonds Stabilize

In a positive development for European debt markets, French assets found support after Moody's affirmed the country's sovereign credit rating late Friday, refraining from a downgrade. The decision helped stabilize French 10-year government bond yields, which had last week breached the psychological 5.00% level to reach their highest point since 2002.