Analysts at BofA Global Research have raised their year-end price objective for Europe’s Stoxx 600 to 630 from 590, citing a brighter macroeconomic outlook across the Eurozone and the potential influence of a newly announced German fiscal stimulus program.
Separately, a team of Barclays analysts - including Ruben Segura-Cayuela and Evelyn Herrmann - reiterated their expectation that the European Central Bank could raise interest rates again in September, but they emphasized that their "conviction level" on such a move is "low."
In their client note, Barclays wrote that their stronger view is that policy will move in the opposite direction later in the cycle: "Our bigger conviction remains that cuts will follow in 2027, bringing the ECB deposit rate to or below 2% by the end of 2027," they said.
The Barclays team also assessed the inflationary pressure tied to energy markets and the conflict in Iran. That episode helped prompt the ECB to lift rates in June, but the analysts argued it will be "a lot less persistent" than policymakers currently fear.
They contrasted the present energy shock with the earlier episode that followed the outbreak of the Ukraine war in 2022, saying the current event is "nowhere near" the scale of that previous shock. The note highlighted two dynamics behind this view: supply is "more resilient than it was" in 2022, and demand is "certainly not as strong as it was" during the COVID-19 reopening period.
Barclays added that, with oil prices having fallen substantially from recent highs, and in the absence of another disruptive event, they are comfortable assuming that any fiscal response to the shock would be limited. Their working assumption is that fiscal support would be contained to, at most, 0.2% to 0.3% of Eurozone GDP.
Meanwhile, Germany announced a substantial reform package earlier this week. The measures include income tax relief, steps to reduce administrative red tape, and changes to the pension system. The coalition government has set a year-end deadline to put the reforms into place.
BofA analysts noted that it could be some time before the German measures are implemented and begin to affect the broader economy. Nevertheless, they suggested that the intended mix of policies - strengthening domestic demand, expanding labour supply, and cutting bureaucracy - could help to ease, though probably not fully offset, the structural downward pressures on growth.
Context and implications
The move by BofA to lift its Stoxx 600 target reflects a combination of improved regional outlook expectations and the potential for domestic policy support in Germany. Barclays’ commentary underlines the continued uncertainty around the near-term path of ECB policy, while offering a clearer view of the later-stage rate outlook through 2027.