European Shares Rally as SAP Surge Sparks Tech Optimism Amid Recession Warnings and New US Tariffs

European Shares Rally as SAP Surge Sparks Tech Optimism Amid Recession Warnings and New US Tariffs​

European markets recovered ground on Friday after seeing their steepest one-day loss in two weeks in the previous session. The pan-European STOXX 600 index finished slightly up at 644.67, marking its second consecutive week of gains. Investors drew significant comfort from corporate earnings reports and reassessed the potential impact of elevated oil prices on global monetary policy settings.

SAP Boosts Tech Sector as Markets Balance Growth Against Valuation Risks​

Germany’s DAX saw a positive move, largely driven by SAP after the software giant announced a 10% increase in its second-quarter current cloud backlog. This performance surpassed analyst expectations and provided a lift to the broader technology index. The sector added 1.7%, recovering some lost momentum following disappointing quarterly updates from STMicroelectronics and BE Semiconductor on Thursday.

Tech companies are currently navigating complex pressures, trying to reconcile AI-driven growth with stretched valuations. Deutsche Bank analysts, led by Jim Reid, pointed out that major tech corporations face two significant challenges: Capital Expenditure (capex) is no longer being financed solely through free cash flow. Furthermore, the emergence of cheaper open-source AI poses a serious threat to existing business models in the sector.

Oil and Energy Stocks Struggle Despite High Commodity Prices​

The energy segment faced headwinds on Friday, despite Brent crude prices remaining above $100 a barrel. Stock performance was hampered by sentiment following Neste, a Finnish biofuel maker and oil refiner, which fell 6.4%. The company reported second-quarter core profit slightly below market expectations.

Overall, the technology sector remains robust, with the STOXX 600 tech segment up nearly 17% year-to-date. This performance trails energy stocks, which have surged by approximately 32%. Among company specific movements, Valmet soared an impressive 22%, heading toward its biggest one-day jump on record after posting strong second-quarter results and announcing a potential business separation.

Inflation Risks Elevate Recession Concerns Prompting ECB Scrutiny​

Market sentiment is reportedly shifting from pricing in a period of weak growth coupled with high inflation to potentially facing an actual recession. Chris Beauchamp, chief market analyst at IG, commented that while the situation is not yet critical, "we could get to that point very quickly."

The European Central Bank (ECB) may need to raise interest rates again due to persistent inflation risks. Three policymakers confirmed on Friday that the ECB maintained steady rates on Thursday but kept a September hike as an option. LSEG-compiled data indicates markets are still pricing in a 25-basis-point increase and estimate about a 70% chance of another similar hike by the end of 2026.

US Tariffs and Corporate Earnings Fuel Sectoral Swings​

The U.S. administration introduced new tariffs, set at 10% and 12.5%, targeting goods from 60 trading partners. These measures follow allegations regarding lax enforcement of forced labour bans, just as a temporary 10% global tariff concluded.

Corporate earnings reports showed varied results across Europe. Volkswagen dipped about 1% after the carmaker lowered its previous revenue growth forecast following a 9.5% slump in second-quarter profit. Meanwhile, security services provider Securitas saw a steep decline of 11%, registering its worst one-day drop since August 2006 after reporting lower than expected core profit.