European markets rally on cooling US economic data

European stock markets are showing signs of recovery as investors react to cooling economic data from the United States. The Stoxx 600 rose by 0.4% in early trading, attempting to reverse a three-week decline. Other indices also saw gains, including the FTSE 100 up 0.7%, the FTSE MIB up 0.8%, and the DAX up 0.2%.

This market movement is driven by weaker-than-expected US labor market data and lower core PCE inflation figures, which have reduced expectations for immediate interest rate hikes by the Federal Reserve. Bank of America reports that the probability of an October rate hike has dropped from approximately 70% to between 15% and 20%, as officials suggest a potential pause until December.

Despite the shift in sentiment, economic fundamentals remain complex. Underlying inflation stays above 2.5%, and job creation continues to exceed stability requirements. Additionally, geopolitical tensions in the Middle East remain a significant source of market uncertainty.