European stocks are expected to open lower on Friday as concerns about inflation resurface following a week of higher-than-anticipated U.S. price data, while political uncertainty in the UK adds to market jitters [1]. According to IG data, London's FTSE 100 is set to open 0.8% lower, Germany's DAX is projected to fall 1.4%, and France's CAC 40 is poised to drop 0.9% [1]. These declines mirror overnight losses in Asian markets, where South Korea's Kospi index fell over 3% after reaching a record high, and Japan's Nikkei 225 declined 1.1% [1].
In the UK, Prime Minister Keir Starmer faces a potential leadership challenge as Labour Party rival Andy Burnham, currently the mayor of Manchester, may run for parliament following the resignation of Labour MP Josh Simons. Burnham is perceived by bond markets as more left-leaning, which has contributed to higher borrowing costs due to investor concerns about increased public spending and debt under a less conservative prime minister [1]. The pound has registered its fifth consecutive decline, falling 0.46% to $1.3342 amid ongoing political turmoil [1].
Investors are also closely monitoring the conclusion of the U.S.-China summit, where both countries agreed on the importance of keeping the Strait of Hormuz open, as stated in a U.S. readout shared by a White House official [1]. Developments from this summit, along with U.S. inflation trends, are expected to influence European markets [1].
Recent U.S. inflation data has heightened market concerns. The U.S. producer price index for April rose 1.4%, the largest monthly increase since March 2022 and significantly above economists' consensus estimate of 0.5%. On an annual basis, the index was up 6%, the biggest increase since December 2022 [1]. This report followed news that the consumer price index rose 3.8% year-over-year in April, driven by surging energy prices and a surprise jump in shelter costs [1]. Core inflation was reported at 2.8%, still above the Federal Reserve's 2% target, suggesting that central bankers may delay policy changes as they assess the impacts of the Iran war and President Donald Trump's tariffs [1].
CONCLUSION
European markets are bracing for declines as renewed inflation fears and UK political uncertainty weigh on investor sentiment. Elevated U.S. inflation data and the prospect of a leadership challenge to Prime Minister Starmer have contributed to market volatility and a weaker pound. Ongoing developments from the U.S.-China summit and central bank responses to inflation will remain key factors for market direction.