Europe is losing growth

The flash estimate of the combined purchasing managers' index (PMI) for the eurozone fell to 47.5 in May, down from 48.8 in April. In the manufacturing sector, the PMI fell from 52.2 to 51.4. In the services sector, the PMI fell from 47.6 in April to 46.4. Overall, the data show that the war in the Middle East is having an increasingly negative impact on the Eurozone economy. The Economic Surprise Index for Eurozone countries dropped from approximately +25 in March 2026 to around -50 two months later. Conversely, the Economic Surprise Index for the United States and Asia increased from approximately 25 in March 2026 to around 50 in May 2026.

The war between the United States, Israel and Iran has resulted in rising oil prices and subsequent inflationary pressure, due to the closure of the Strait of Hormuz. This hs led to increased transportation costs, as well as the risk of shortages of artificial fertiliser and smaller harvests in the second half of 2026. However, the US has become the world’s third-largest net exporter of oil in recent decades, meaning that some sectors of the US economy benefit from rising oil prices. Since the last major oil crisis in the 1970s, Europe has reduced its dependence on oil significantly. Nevertheless, several European countries still depend heavily on frictionless world trade, which is unfortunately not the case at present.

Negotiations for a prolonged ceasefire between the US and Iran are ongoing, including discussions around the Iranian nuclear energy programme. This has overshadowed the fact that Trump's new, significantly higher tariffs have been in effect for some time. Higher tariffs lead to higher inflation, but lower world trade affects Europe differently to how it affects the US. This is because several major European countries, such as Germany, are large net exporters, whereas the US is a net importer.

The weakening European economy means that the ECB and other European central banks are likely to face greater pressure than the Fed to keep policy rates low and stimulate domestic economies. We also anticipate that European governments will provide government subsidies to households to achieve this. However, inflationary pressures resulting from higher tariffs and energy prices mean that interest rate cuts are less likely. Instead, central banks will be forced to combat inflation. In that case, Europe risks experiencing stagflation, and the path to improved economic growth could be long.

As shown in the graph below, the Nasdaq improved from the sixth-best price development on April 21 to the third-best today, approximately one month later. This can be explained by the positive hype surrounding all AI-related stocks worldwide over the past month.

Today, Wednesday, May 27, macro statistics will begin with April profits from Chinese industrial companies. Later in the day, the results of a survey of French household confidence in May will be released. From the U.S., we will receive the ADP private employment report, the Redbook retail sales report, weekly data, the Richmond Fed index for May, and weekly oil inventory data from the Department of Energy. Salesforce will also release an interim report.

On Thursday, May 28, the Swedish company Elekta and the American companies Dell Technologies and Costco Wholesale will release their interim reports. In tems of macro statistics, Norway's Q1 GDP and Sweden's April trade balance will be released. The Swedish NIESR will publish a business survey for May. A business survey for the Eurozone will also be published for May. The U.S. will contribute housing construction data for April, Q1 GDP, durable goods orders for April, weekly jobless claims and new home sales data for April.

On Friday, May 29, the release of macro statistics will begin with Japan's industrial production figures for April. This will be followed by Sweden's and Finland's first-quarter GDP, as well as Sweden's household lending and retail sales for April. Also on Friday, Germany will rrelaese its import prices for April and CPI for May, and France will publish its CPI for May and GDP for Q1. Additionally, Italy's and Spain's CPI figures for May will be released. In the afternoon, Canada's Q1 GDP will be released, along with the US's April trade balance of goods and wholesale inventories, and the May Chicago Purchasing Managers' Index.

Over the past week, optimism surrounding Middle East peace talks and the easing of oil price pressures have been key drivers of the S&P 500, among other factors. As can be seen in the chart below, the index is currently trading at record highs. However, oil prices are also rising, so it seems unlikely that the rally will continue at this pace. Watch out for the EMA9 and MA20 levels, which are currently at 7,354. Breaking below this level could open the way to 7,155. Conversely, if the peace talks remain on track, a pullback towards the MA20 could present a buying opportunity.

Arguably, the NASDAQ-100 has benefited more than the S&P 500 from the rebound in semiconductors and AI, thanks to the peace talks and lower oil prices. On the downside, the index is supported by the EMA9 and MA20. If it falls below the MA20, the next support level of around 27,200 could come into focus. Conversely, a pullback towards the MA20 could present an attractive opportunity to capitalise on the current rally.

Some time ago, one of these articles’ series discussed the DAX long/S&P 500 short spread. This trade has performed well thus far and could still be worth holding in order to reduce overall market risk. As can be seen in the chart below, the DAX is currently approaching its previous highs. Meanwhile, unlike in the US, the RSI has not yet reached overbought territory. On the downside, initial support sits at around 24,900 and 24,700.

The OMXS30 is currently trading just below the 3,180-resistance level. The next level of resistance is close by, at around 3,220. Initial support on the downside is seen around 3,145, followed by the EMA9 and MA20 at 3,086.

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence