European stocks closed slightly higher on Monday, buoyed by a dip in government bond yields and speculation about potential interest rate cuts from the
European Central Bank (ECB). However, trading volume was thin due to the closure of some major global markets for public holidays.
The pan-European STOXX 600 index rose by 0.3%, remaining close to its all-time high achieved earlier this month.
Key ECB policymakers indicated that while there is room for interest rate cuts as inflation begins to slow, the bank will likely take a cautious approach to easing policy, even though the general direction is clear.
"It remains to be seen how the data will turn out. However, the environment suggests that inflationary pressure will ease in both the eurozone and the U.S.," noted Rainer Singer, an analyst at Erste Group, in a report. He added, "The ECB is very likely to cut interest rates in June. The Fed, however, is not yet ready."
Government bond yields across Europe eased, with the yield on Germany's benchmark 10-year bund settling at 2.547%.
This week's focus will be on the release of May consumer price data for the eurozone, due on Friday, along with individual inflation reports from Germany, Spain, and France throughout the week.
Expectations are high that the ECB will initiate interest rate cuts at its upcoming meeting next week, with market bets indicating over a 90% probability of a rate cut, according to data from LSEG.
In the U.S., inflation data due on Friday will also be closely watched, as it could provide insights into the timing and extent of possible rate cuts by the Federal Reserve later this year.
The absence of U.S. and UK traders, due to public holidays, contributed to the lighter trading activity.
Most major sectors within the STOXX 600 ended the day in positive territory, with utilities leading the gains, rising by 1.1%, followed by a 1% increase in the automobile sector.
In economic data, a survey revealed that German business morale remained stagnant in May, falling short of expectations for improvement. Despite this, Germany's benchmark stock index closed 0.4% higher.
In individual stock movements, Alstom surged by 5.6% after the French train manufacturer announced the terms of a planned 1 billion-euro ($1.08 billion) rights issue, part of broader efforts to strengthen its finances.
Conversely, shares of salmon farmer P/F Bakkafrost fell by 2.5% after the confirmation of the ISA virus in two pens at its farming site in Vágur. Photo by Ank Kumar, Wikimedia commons.