European Markets Rise as World Economic Forum Begins in Davos

European markets were higher on Monday as investors assessed the growth and inflation outlook in light of recent data alongside the beginning of corporate earnings season.

The Stoxx 600 index was up 0.3% by midday, with financial services stocks adding 0.8% while travel and leisure stocks dropped 0.5%.

This week, the World Economic Forum in Switzerland is a key focus for European markets. Leaders from various sectors will gather in Davos to discuss key issues such as the war in Ukraine, economic instability and uncertainty, and climate change. This event provides an important opportunity for delegates to share ideas and perspectives on these pressing issues.

This year's World Economic Forum is being held against a backdrop of a cost-of-living crisis for many people, and some leaders are not attending the annual meeting because of ongoing crises at home. German Chancellor Olaf Scholz is the only Group of Seven leader who is set to attend the forum this year.

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At the bottom of the European blue chip index, laboratory equipment maker Tecan Group fell 4% after Kepler Cheuvreux downgraded the stock from “buy” to “hold” and cut its target price.

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As inflation expectations decline among consumers, there is a growing expectation that the Federal Reserve will soon reduce the level of interest rate increases, and eventually end them altogether. This is likely to have a positive impact on the economy, as it will encourage more spending and investment.

The University of Michigan consumer sentiment survey on Friday showed the one-year inflation outlook down to 4%. This is the third straight monthly decrease and the lowest level since April 2021.

Traders are assigning a 94.2% chance of a 0.25 percentage point interest rate increase on Feb. 1, when the Fed’s next two-day meeting concludes. This would be another smaller move than the 0.5 percentage point hike in December, which itself was a deceleration from four straight 0.75 percentage point increases.

LPL Financial chief economist Jeffrey Roach said that inflation expectations are well-anchored and improving, as pricing pressures are weakening across many sectors. He added that the Fed will likely hike by 0.25% at the upcoming meeting later this month, and that it wouldn't be surprising if the Fed starts talking about pausing in the near future.

European markets are set to open higher on Monday as investors weigh the inflation outlook globally after positive signs from U.S. data last week.

According to data from IG, the U.K.'s FTSE 100 index is expected to open 10 points higher at 7,856, Germany's DAX 84 points higher at 15,174, France's CAC up 43 points at 7,063 and Italy's FTSE MIB up 142 points at 25,895.

Data releases this week include Germany's ZEW survey of economic sentiment for January and preliminary Italian inflation figures for January. The World Economic Forum begins in Davos, Switzerland, on Monday.