European Markets Set for Lower Open

European equities advanced on Wednesday, edging closer to record levels, buoyed by strong gains in defense shares and investor reaction to reports of a possible leadership change at the European Central Bank. The Stoxx 50 rose 0.4% to 6,050, while the broader Stoxx 600 gained around 0.5% to 625. Defense stocks jumped more than 2%, led by a nearly 6% surge in BAE Systems after the company reported a stronger-than-expected rise in full-year operating profit. Sentiment in the sector was also supported by reports that Germany is considering taking a minority stake in KNDS ahead of its planned listing this year. Meanwhile, the Financial Times reported that Christine Lagarde could step down as ECB president before France’s 2027 presidential election. Elsewhere, Carrefour shares fell 5% after the retailer posted a drop in operating profit. Investors also looked ahead to the release of minutes from the Federal Reserve for further signals on the US monetary policy outlook.

European equity markets were poised for a higher open on Wednesday, extending the prior session’s gains as selling pressure linked to artificial intelligence showed signs of stabilizing. Geopolitical tensions also appeared to ease after the US and Iran reached an understanding on “guiding principles” in efforts to resolve their nuclear dispute. Meanwhile, Russia and Ukraine concluded the first two days of US-mediated peace talks. On the macro front, investors will scrutinize January inflation data from the UK, following labor market figures that showed unemployment climbed to a five-year high last month. Final January inflation readings from France are also due. Corporate earnings releases are expected from CRH, Glencore, Orange, and Garmin, among others. In premarket trade, Euro Stoxx 50 and Stoxx Europe 600 futures were both up around 0.3%.

European stocks closed sharply higher on Tuesday, gaining some traction following multiple muted sessions with strong support from financials and consumer discretionary companies. The Eurozone's STOXX 50 added 0.7% to 6,022 and the pan-European STOXX 600 gained 0.5% to 621.4, decimals away from the record high touched last week. Banks closed sharply higher and insurers gained for a second session, benefiting from another positive session for benchmark sovereign bonds. UniCredit, BNP Paribas, and AXA gained between 1.7% and 2.7%. Meanwhile, auto producers and luxury brands were supported by the outlook of a slash to metal tariffs by the United States and hopes of strong retail sales in China in their holiday period. LVMH, Mercedes Benz, and BMW gained between 2.5% and 1%. In turn, Bayer surged 7.5% as it prepared to announce a $10.5 billion settlement on future cancer lawsuits over its Roundup weedkiller.