Ever wake up, check the futures, and actually feel a small spark of optimism? That’s exactly how Friday morning felt for anyone watching European markets.
After weeks of wobbling between geopolitical headlines and sticky inflation worries, the continent’s major indices are pointing firmly higher before the opening bell. It isn’t some wild euphoria, mind you, just a quiet, collective sigh of relief that maybe, just maybe, things aren’t falling apart today.
A Perfect Storm of Cautious Optimism
Let’s be honest, most of this year the backdrop has felt like walking a tightrope over a canyon. Central banks hiking rates into a slowdown, an ongoing war in Europe, energy shocks, you name it. Yet right now several stars are aligning in a way they simply haven’t for months.
The biggest catalyst? The Federal Reserve.
The Fed Pivot Everyone Suddenly Believes In
–>Two weeks ago the probability of a December rate cut sat below 60%. This morning the CME FedWatch tool shows 87% pricing for a 25-basis-point cut next week. That’s a dramatic swing in a very short time.
Why the rush of confidence? Thursday’s US jobless claims number dropped far more than anyone expected, yet the labor market still looks soft enough that the Fed can justify easing without looking reckless. Add in the fact that core PCE, the Fed’s preferred inflation gauge, comes out today and is expected to show continued cooling, and suddenly “higher for longer” feels like ancient history.
For European investors this matters enormously. A Fed cut almost always drags the ECB along eventually, and cheaper dollar funding tends to support risk assets across the board. No wonder Stoxx 50 futures are up around 0.2% and the FTSE 100 is nudging higher too.
“Markets hate uncertainty more than they hate bad news. Right now we’re getting a rare moment where the path looks clearer.”
Ukraine: A Flicker of Hope or Just Noise?
I’ve learned not to get too excited about “breakthrough” headlines when it comes to Ukraine, but this week actually delivered some unusual diplomatic movement.
A U.S. delegation visited Moscow, Putin is in India talking energy and payments with Modi, and behind the scenes European officials are exploring ways to channel frozen Russian assets toward Kyiv reconstruction, something Moscow immediately called a potential “casus belli”. Tense, yes, but the very active diplomacy usually means the status quo is becoming uncomfortable for everyone.
Markets, cold-hearted as they are, tend to price the absence of escalation rather than the presence of peace. The fact that European defense stocks aren’t ripping higher this morning tells you risk appetite is tilting toward “maybe this drags on but doesn’t explode.” For now, that’s enough.
Corporate Spotlight: Swiss Re Lays Out Ambitious Targets
While macro dominates the headlines, one company quietly dropped numbers that deserve attention. Global reinsurer Swiss Re presented its 2026 goals this morning and basically said: we’re raising the bar.
- Target net profit of $4.5 billion (above the $4.4 billion 2025 minimum)
- Annual dividend per share growth of at least 7% over the next two years
- Continued discipline on property & casualty combined ratios
In a world where insurers and reinsurers have been crushed by climate-related claims, seeing management this confident feels refreshing. Shares reacted positively in early Zurich trading, and the broader insurance sector got a small lift across Europe.
Data Calendar: Plenty to Keep Traders Busy
Friday might be the calm before next week’s central-bank storm, but the economic diary is far from empty.
- EU final Q3 GDP, expected unchanged at +0.9% y/y
- German factory orders for October (consensus +0.4% m/m)
- French trade balance and Italian retail sales
- Across the Atlantic: U.S. personal spending, Michigan sentiment, and PCE inflation
Any upside surprise in the U.S. numbers could temper some of the dovish euphoria, but the bar for today feels reasonably low.
Sector Watch: Who Wins If Rates Really Fall?
If the Fed and eventually the ECB do deliver cuts in 2026, a few areas look particularly interesting from a European perspective:
- Real estate & REITs – lower financing costs = higher property valuations
- Small & mid-caps – many are heavily leveraged and rate-sensitive
- Utilities & infrastructure – stable cash flows become more attractive when bond yields fall
- High-yield credit – spreads could compress further
Banks are the obvious wild card. Net interest margins have been fantastic in a high-rate world, but a rapid cutting cycle could squeeze them again. Watch for rotation out of the big money-center names if the dovish scenario plays out.
The Bigger Picture: Are We Out of the Woods?
Look, I’m not here to sell you the “everything is awesome” narrative. Inflation is still above target in many places, geopolitical risks haven’t vanished, and recession fears tend to resurface every few months like a bad horror-movie villain.
But markets climb walls of worry for a reason. When central banks shift from hiking to cutting, when diplomatic channels suddenly light up, when corporate guidance trends upward instead of downward, those are the moments when being under-invested starts to hurt.
Perhaps the most interesting aspect is how quickly sentiment can flip. Two weeks ago the narrative was “stagflation and endless war. Today it’s soft landing and peace feelers. The truth, as always, is probably somewhere in the messy middle.
Either way, European stocks are set to open higher, investors are dipping their toes back into risk, and for the first time in a long while the path of least resistance feels upward.
Whether that lasts through next week’s Fed decision, well, that’s why we keep watching.
Disclosure: No positions in stocks mentioned at the time of writing.
