Europe's STOXX 600 holds steady as Germany hits record high

European stocks steady: European stocks were stable on Monday as investors assessed a wave of economic data to gauge the European Central Bank's (ECB) policy direction. Despite the broader European market's steadiness, Germany's DAX index reached an all-time high, even amid uncertainty following recent state election results.

The STOXX 600 index, which tracks the broader European market, remained unchanged at 524.94 points, lingering near its record highs achieved last week. This stability followed recent data showing euro zone inflation at its slowest rate in three years.

DAX soars despite election upheavals

In Germany, the DAX index rose by 0.1 per cent to end the day at a record 18,930.85. This milestone was achieved despite recent state elections that saw victories for the far-right Alternative for Germany (AfD) and the leftist Sahra Wagenknecht Alliance (BSW), posing challenges for Chancellor Olaf Scholz’s already tenuous coalition.

Analysts at SEB noted that the state election results could signal increasing political instability in Germany and France, potentially affecting the entire European Union as the parliamentary elections approach next year.

On the economic front, a survey highlighted a continued decline in Germany's manufacturing sector in August. Euro zone manufacturing activity also remained in contraction, with demand falling sharply, the steepest drop this year.

Money markets are almost fully anticipating a 25 basis-point rate cut by the ECB on September 12, according to LSEG data. However, there is a divide among ECB policymakers regarding the growth outlook, with some concerned about a potential recession and others focused on persistent inflation pressures.

Real estate sector shines

In sector-specific news, the rate-sensitive real estate sector emerged as the top performer on the STOXX 600, rising 1.8 per cent to its highest level since February 2023. Morgan Stanley upgraded its view of European property firms to "attractive."

Conversely, the aerospace and defence sector experienced a decline of over 2.4 per cent, its worst performance in two months, primarily due to a significant drop in Rolls-Royce shares. The British company, which is the exclusive engine supplier for Airbus’ A350 jetliner, saw a 6.5 per cent fall in its shares after Cathay Pacific Airways announced a fleet-wide inspection of its A350 aircraft due to engine component issues. This news also led to a 1.4 per cent decrease in Airbus shares.

In other notable movements, Volkswagen shares rose 1.7 per cent following the company's announcement of potential factory closures in Germany. Rightmove's shares surged 27 per cent after REA Group, majority-owned by News Corp, expressed interest in acquiring the British property listings company.

Investors will be closely watching further economic data, ECB officials' speeches, and US payrolls data later in the week for additional insights.