European markets rebounded as equities surged on Wednesday as investors shrugged off lingering concerns over trade tensions and welcomed signs of renewed economic momentum across the continent.
The pan-European STOXX Europe 600 Index jumped 3.44%, its strongest single-day gain in over a year, fuelled by easing tariff rhetoric and a series of upbeat economic indicators.
The rally comes as a wave of optimism washes over trading floors from Frankfurt to Milan. Investors appear to be betting that the worst of the tariff skirmishes between the European Union and the United States may be behind them, after both sides signalled a willingness to return to negotiations and avoid further escalation.
At the same time, recent eurozone data has provided a welcome tonic for those worried about the continent’s economic health. Revised figures from Eurostat show the eurozone economy grew at an annualised rate of 1.6% in the first quarter of 2025, ahead of economists’ expectations and suggesting that the bloc may be turning the corner after a sluggish 2024.
“The market’s reaction speaks volumes,” said Petra Klein, chief economist at NordInvest Bank. “After months of uncertainty driven by protectionist posturing and geopolitical tremors, there’s a growing belief that the European economy has found its footing—and that policymakers on both sides of the Atlantic are realising the need for stability.”
The STOXX 600’s broad-based gains were led by cyclical sectors. Industrial firms and luxury goods manufacturers—both heavily exposed to international trade—posted robust performances. LVMH rose 4.1%, while German machinery giant Siemens gained 5.2%. Banks also benefited from improved growth forecasts and the prospect of firmer interest rate expectations. Deutsche Bank and BNP Paribas both rose more than 3%.
On the currency front, the euro held steady against the dollar at around $1.09, as traders weighed the bullish economic indicators against the prospect of continued monetary tightening by the European Central Bank. ECB President Christine Lagarde has in recent weeks walked a careful line, acknowledging inflationary pressures while signalling that interest rate hikes are likely nearing their peak.
Analysts were also cheered by diplomatic developments. European Trade Commissioner Clara de Vries confirmed in Brussels that discussions with her U.S. counterpart were “constructive” and that both parties were seeking a “balanced and durable” solution to the recent dispute over green subsidies and digital taxation.
“It’s not yet détente,” said Felix Marek, a senior analyst at Saxo Strategies, “but the shift in tone is undeniable. Markets are responding not just to economic data but to a sense that the adults are back in the room.”
Nonetheless, risks remain. Tensions in the Taiwan Strait and ongoing instability in parts of the Middle East continue to cast shadows over global supply chains, while populist pressures in several EU member states could complicate both trade negotiations and fiscal discipline.
Moreover, while growth has returned, it remains uneven. Southern European economies continue to struggle with elevated unemployment and creaking public finances. Italy’s debt-to-GDP ratio remains stubbornly above 140%, prompting fresh warnings from credit rating agencies.
But for now, investors are choosing to focus on the silver linings. Retail sales in Germany rose 1.2% month-on-month, their strongest showing since early 2023. French business confidence has also ticked upwards, and Spain’s services sector posted its sixth consecutive month of expansion.
The mood on trading floors was buoyant, if cautious. “We’re not out of the woods, but we’re walking in the right direction,” said Stéphane Giraud, a senior portfolio manager at Helios Capital in Paris. “The European consumer is more resilient than expected, exports are holding up, and the political class appears to have realised that economic brinkmanship benefits no one.”
London’s FTSE 100 closed up 2.7%, with gains in mining and financial stocks leading the charge. The DAX in Frankfurt surged by 3.8%, while the CAC 40 in Paris climbed 3.5%, its best performance since February 2023. Milan’s FTSE MIB rose 3.2%, reflecting the strong showing from Italy’s industrial giants.
Looking ahead, attention will turn to next week’s ECB meeting and whether policymakers will hint at a pause in rate hikes following the improving data. Bond yields across the eurozone edged slightly lower on Wednesday, a sign that investors are recalibrating expectations for future monetary tightening.
For now, European markets appear to have rediscovered their confidence. After months of fretting over tariffs, inflation and stagnation, a new narrative is emerging—one of cautious optimism, rekindled growth, and a belief that Europe can still chart a stable course through global turbulence.
