Europe midday: Markets surge on tech rally, tariff speculation

News that Microsoft is investing $80bn this year on AI data centres gave share prices in the European tech sector a big lift, along with speculation that Donald Trump's proposed trade tariffs may be watered down.

The Stoxx 600 was up 0.7% at 511.84 by 1245 CEST, with impressive gains in Frankfurt (+1.3%), Paris (+1.8%) and Milan (+1.3%) tempered by a more conservative performance in London (+0.1%) in Madrid (+0.7%).

Helping boost sentiment were hopes that the negative impact from Trump's protectionist measures to support American goods could be less severe than expected.

The Washington Post cited people close to the matter who said that duties would be imposed on every country but only applied to imports critical to economic or national security – a major shift from US president-elect's initial campaign pledge.

The reports followed a weekend meeting between Italian prime minster Georgia Meloni and Trump, which ignited hopes that an improved relationship between the two nations could "help insulate Italy from the worst of the tariff threats and could provide a cushion of support for the wider EU", according to Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Economic data barrage

December's downturn in private-sector activity in the eurozone wasn't as bad as initially feared, according to revised estimates from the Hamburg Commercial Bank (HCOB) on Monday, as the service sector grew more than expected. The HCOB composite purchasing managers' index for single-currency region was lifted by 0.1 points to 49.6, up from the flash reading of of 49.5 released two weeks ago and higher than the 48.3 reported for November.

The eurozone services PMI was revised up to 51.6 from a preliminary print of 51.4, rebounding strongly after its first contraction in ten months in November (49.5), with readings in Germany, France, Italy and Spain all revised higher.

In China, the Caixin/S&P Global services PMI hit a seven-month high of 52.5 in December amid a jump in domestic demand, beating the 51.7 reading expected by economists and November's print of 51.5.

However, things weren't quite as rosy in the UK, where two sets of data disappointed the market.

The S&P Global UK composite PMI was revised down to 50.4 for December from the flash reading and November's print of 50.5, marking the lowest rate of private activity growth since October. The final services PMI was revised down to 51.1 from 51.4, with the sector recording the sharpest decline in employment in nearly four years.

Meanwhile, the British Chambers of Commerce's quarterly survey showed a decline in business confidence as a result of proposed tax changes in the autumn budget, with just 49% of firms expecting their turnover to increase over the next 12 months, down from 56% in the third quarter and the lowest figure since late-2022.

Later in the session, markets will get their first look at German inflation data for December, ahead of the release of eurozone-wide price data on Tuesday, while Monday afternoon will see revisions to the S&P Global US composite PMI. Looking ahead, crucial labour-market indicators from the US for last month will garner a lot of attention as investors continue to predict how the Federal Reserve will act at its next policy meeting.

Market movers

Chip stocks like ASML, ASMI, Infineon and STMicroelectronics surged on the back of Microsoft's AI investment news.

London- and Amsterdam-listed consumer goods giant Unilever was lower after RBC Capital Markets downgraded the stock to ‘underperform’ from ‘sector perform’. The bank said the stock's valuation is pushing towards best-in-class level which it thinks is unjustified, while risk/reward is weighted to the downside.

Rolls-Royce also slumped after Citi cut its stance on the shares to 'neutral’ from buy’ on valuation grounds.

Luxury stocks were mostly higher, including Italian brands Brunello Cucinelli, Salvatore Ferragamo and Moncler, and French names LVMH and Christian Dior, on the back of the weekend meeting between Meloni and Trump.

"There will be hopes the impact [from Trump's trade tariffs] on the luxury goods sector will be more minimal thanks to these rounds of glad-handing," Streeter said.