European Stocks Set for Cautious Open

Stocks in Europe kicked off the week on a cautious note, with both the STOXX 50 and STOXX 600 trading around the flatline as investors continued to monitor developments in the Middle East and the political situation in Germany. The far-right AfD secured a historic victory in the state elections in Saxony-Anhalt. The result represents a setback for Chancellor Merz, with his CDU recording its worst-ever result in Saxony-Anhalt since German reunification. Meanwhile, oil prices moved higher amid renewed strikes involving the US and Iran. Investors are also looking ahead to the ECB's monetary policy decision this week, with the central bank widely expected to raise borrowing costs. Shares of Novartis fell more than 3% after its cholesterol drug failed to meet expectations in a closely watched study. In contrast, ASML Holding rose 1.2% and Infineon gained 1.8%, while the energy sector traded in positive territory, led by TotalEnergies, which advanced 1.6%.

European equity markets were poised for a subdued opening on Monday as caution prevailed amid expectations that major central banks could raise interest rates in the near term. Markets increased bets on a Federal Reserve rate hike this month after stronger-than-expected US jobs data. The European Central Bank is likewise expected to raise rates this week to 2.75%, with investors also pricing in another hike in December. Rate expectations were reinforced by rising inflationary risks as oil prices climbed further after the US and Iran exchanged strikes on ships over the weekend. Meanwhile, investors will assess another reading of Eurozone Q2 GDP along with final data on employment changes during the quarter. In premarket trading, Euro Stoxx 50 and Stoxx 600 futures were little changed to slightly lower.

European stocks closed slightly higher on Friday as markets continued to assess how economic activity will fare in a period of higher interest rates. The Euro STOXX 50 gained 0.2% to 6,396 and the STOXX 600 added 0.2% to 650. ASML gained more than 3% after a volatile week, tracking AI infrastructure stocks in the United States following promising signals from OpenAI's latest GPT model. Nokia jumped 3.1% and Nvidia gained 2.6%. Meanwhile, Volkswagen rose 6.6% after it approved another round of job cuts to reign in spending and adapt to a period of lower auto demand in Germany. On the other hand, banks were mixed on a volatile day for global bonds. Bets for a Fed hike were supported by a strong US jobs report, although most sovereign yields in the Eurozone were down on the long end. BNP Paribas and ING closed in the green, while UniCredit and Santander dropped. The Euro STOXX 50 lost 1.4% and the STOXX Europe 600 fell 0.8% on the week.