On Monday, European shares were trading close to two-month highs, as indications of a slowdown in the Chinese economy pushed investors towards defensive sectors.
These include consumer staples and healthcare stocks, which are typically considered immune to the impacts of business cycles.
There was a 0.3% increase in the continent-wide STOXX 600 index, which saw it trading close to levels required for recovering all of its losses made in June.
This was when investor sentiment had been under pressure because of recession worries and aggressive interest rate hikes by the US Fed.
On Monday, European bourses got their biggest boost from healthcare stocks. A 2.3% gain was also recorded in AstraZeneca, as its cancer drug named Enhertu appeared to be effective in breast cancer treatments.
There was also a 1% rise in food and beverage stocks that saw them leading gains, while a 0.8% increase was recorded in utilities.
These gains were able to balance off the losses recorded in China-exposed automakers, miners, and oil after the Chinese central bank reduced its lending rates in a surprise move.
The reduction was aimed at boosting demand, as economic data showed that the Chinese economy had weakened more than expected in July.
Euro zone data
Market analysts said that European markets have already priced in volatility for the year because of inflation, the Ukraine war, and the zero-COVID policy of China.
There are also concerns about whether the central bank would be able to tame things to an extent that investors are able to regain their confidence.
Currently, investors are focused on euro zone data that is due for the week, which includes HICP inflation and flash GDP.
Moreover, US retail sales data is also scheduled for release on Wednesday. Market analysts said that people were waiting to see the impacts of inflation.
The data lined up for release this week would shed some light on how consumers are faring and the markets were just taking a deep breath before the storm.
There was a 0.4% drop in German wholesale prices in July, as opposed to the month before. According to the Federal Statistical Office, this is the first decline recorded since October 2020.
There was a decline in Euro zone government bond yields over concerns about a possible economic recession.
There has been a rally in the stock markets in Europe after hitting lows in June, echoing the positive sentiment also seen on Wall Street.
This was because of signs that inflation in the US may have finally reached a peak, enough for the US Fed to scale back its aggressive rate hiking stance.
The benchmark STOXX 600 index had reached a year low back in June but has recorded gains of 10% since then.
However, it is still down for the year by almost 9.3%. There was a 2.7% rise in HelloFresh, as the German company said that it could still achieve its outlook for the year, even though it had reduced its forecast in the previous month.