European markets are set to open higher ahead of flash inflation data

European markets are poised for a slightly positive open, while U.S. stock futures slipped amid renewed trade tensions, highlighted by President Trump's plan to double steel tariffs and China's disappointing manufacturing data, which contracted at the fastest pace since September 2022 due to declining export orders. Investors are also awaiting Euro zone inflation data, expected to show a cooling towards 2%, potentially leading to a 25 basis point rate cut by the ECB on Thursday.

Analysis

European equity markets are poised for a modestly positive open, with London's FTSE expected up 6 points, Germany's DAX up 42 points, France's CAC 40 up 6 points, and Italy's FTSE MIB up 106 points, according to IG futures data. However, broader market sentiment is cautious, underscored by U.S. stock futures slipping after a positive start to June trading where the S&P 500 gained 0.41% and the Nasdaq Composite advanced 0.67%. The primary driver of this caution is the resurgence of trade tensions, highlighted by President Trump's announcement to double U.S. tariffs on steel imports to 50% effective June 4, and souring U.S.-China trade talks, despite potential for a Trump-Xi conversation. Compounding these concerns, China's Caixin/S&P Global manufacturing PMI for May contracted to 48.3, its fastest decline since September 2022 and missing the 50.6 estimate, with falling export orders linked to U.S. tariffs. In Europe, investors are keenly awaiting May's flash Euro zone inflation data, which is anticipated to cool towards 2%, potentially paving the way for a widely expected 25 basis point interest rate cut by the European Central Bank on Thursday; this follows an unchanged April inflation rate of 2.2% which missed expectations for a decrease. The overall market sentiment is characterized as mixed (-0.1 sentiment score) and uncertain, with a moderate market impact score of 0.6.

Key Decisions for Investors

• Investors should closely monitor developments in U.S. trade policy, particularly the upcoming doubling of steel tariffs to 50% on June 4 and any signals from U.S.-China trade discussions, given their direct impact on market sentiment and economic indicators such as China's contracting manufacturing PMI.
• Attention should be paid to the forthcoming Euro zone May inflation data; a reading near the expected 2% could solidify expectations for a 25 basis point ECB rate cut this Thursday, potentially influencing European equities and currency valuations.
• Consider re-evaluating exposure to companies and sectors highly sensitive to global trade dynamics and Chinese manufacturing output, particularly in light of the Caixin PMI's sharp fall to 48.3, which was attributed to declining export orders exacerbated by U.S. tariffs.