Europe close: Stocks advance on first day of 2026

2nd Jan 2026 17:44

(Sharecast News) - European equities advanced sharply on the first trading day of the year, pushing to fresh intra-day highs and extending momentum from strong gains in 2025.

The pan-European Stoxx 600 rose 0.67% to 596.14, with Germany's DAX up 0.2% at 24,539.34, France's CAC 40 climbing 0.56% to 8,195.21 and London's FTSE 100 adding 0.2% to 9,951.14 after briefly trading above the 10,000 mark earlier in the session.

The Stoxx 600 gained nearly 16% last year, underpinned by a surge in defence stocks amid rising government spending in response to the war in Ukraine, while bank shares were also well supported.

Axel Rudolph, senior technical analyst at IG, said the FTSE 100's move through the 10,000 milestone was "a powerful signal for UK markets, reflecting ongoing confidence in earnings resilience, attractive valuations and the growing appeal of UK equities to international investors at a time when policy headwinds are beginning to ease."

New Year cheer tempered by weaker eurozone data

Sentiment was tempered by weaker eurozone economic data, which showed manufacturing conditions deteriorating further at the end of 2025.

The HCOB eurozone manufacturing PMI fell to a nine-month low of 48.8 in December from 49.6 in November, while the output index slipped back into contraction at 48.9 from 50.4.

New orders declined at the fastest pace in almost a year, signalling renewed demand weakness, although HCOB said business confidence about the year ahead was the strongest since just before Russia's full-scale invasion of Ukraine.

Chief economist Cyrus de la Rubia said the downturn was marked by "significantly fewer orders, declining order backlogs, and continued inventory reduction," adding that caution among firms was weighing on activity, even as expectations for 2026 improved on hopes of German fiscal stimulus and higher defence spending across Europe.

Trade developments in the United States were also in focus after Washington scaled back proposed tariffs on Italian pasta producers.

The US Department of Commerce reduced planned duties to between 2% and 14%, down from threatened levels of up to 92%, although final decisions were due on 11 March and any additional tariffs would still sit on top of a 15% levy on most EU goods.

The US imported around €671m worth of Italian pasta in 2024, and the administration had already been forced to roll back tariffs on more than 200 food products amid concerns over rising consumer prices.

In the UK, data painted a mixed picture.

Manufacturing showed further signs of recovery, with the S&P Global UK manufacturing PMI rising to a 15-month high of 50.6 in December from 50.2, supported by a third consecutive month of output growth and the first increase in new orders since September 2024.

However, house price growth slowed sharply, with Nationwide reporting a 0.6% annual increase in December, the weakest in 20 months, as average prices slipped to £271,068.

Dan Coatsworth, head of markets at AJ Bell, said, "Investors have faced considerable uncertainty, and many have looked away from the US for opportunities.

"They've focused on cheaper areas of the market, of which the UK is one," adding that the FTSE 100's performance showed "the UK market is not stuck in the mud, and that the US stock market is not the only place to make money."

Dutch semiconductor names lead the risers

Equity markets were led higher by a rally in semiconductor and defence stocks.

Dutch chip equipment makers BE Semiconductor Industries surged 11.48% and ASM International gained 6.99% after reports that the US government granted Taiwan Semiconductor Manufacturing Company an annual licence to import US chipmaking equipment for its Nanjing facilities.

ASML Holding rose 7.04%.

Elsewhere, Denmark's Orsted climbed 4.62% after challenging the US government's suspension of an offshore wind lease, while defence and industrial names including Thyssenkrupp, Kongsberg Group, Leonardo, Rolls-Royce and Saab Holdings all advanced by more than 4%.

Coatsworth said defence spending had been a key tailwind, noting that "a push for more governments to spend on defence has also improved the earnings prospects for contractors," a theme that continued to support European equities at the start of the year.

Reporting by Josh White for Sharecast.com.