European Stocks Slip as Market Optimism Fades, Fed Uncertainty Weighs on Sentiment

By Harshit, LONDON, NOV. 17 —

European markets retreated on Monday after a bright start to the trading session, as renewed caution over global economic conditions, concerns about an overheated artificial intelligence sector, and shifting expectations for U.S. Federal Reserve policy weighed on investor sentiment.

The pan-European Stoxx 600 fell 0.54% to 571.73 by midmorning in London, reversing early gains that had lifted the index into positive territory at the open. Major regional bourses also slipped, led by declines in France and Germany.

The losses mark a cautious start to the week after European stocks ended Friday sharply lower, dragged down by fears of an AI-driven market bubble and worries about the global economic outlook.

Defense and Aerospace Stocks in Focus

Swedish aerospace and defense firm Saab AB was among the top gainers Monday, surging 7.4% after announcing a $3.6 billion agreement with the Colombian government to supply 17 Gripen fighter jets over the next five years. The deal bolsters Saab’s position in Latin America and extends the reach of its Gripen E program, already in use by Brazil and Sweden.

Analysts at Nordea Bank called the contract “a significant milestone that underscores Saab’s export potential and the resilience of Europe’s defense sector amid rising geopolitical tensions.”

Meanwhile, Airbus SE rose 1.2% following reports that the European planemaker was close to finalizing a major aircraft deal with flydubai, potentially securing nearly 100 new jets for the airline. If confirmed, the contract would represent a win over Boeing, Airbus’s long-time U.S. rival, at this week’s Dubai Airshow 2025.

“Airbus appears to have edged ahead in the competition for flydubai’s narrow-body aircraft order, highlighting its production advantage and the airline’s growing pivot toward European suppliers,” said RBC Capital analyst Rob Stallard in a client note.

WPP Jumps on Takeover Interest

Shares of WPP Plc, the London-based advertising and marketing conglomerate, climbed more than 5% after reports surfaced that the company had drawn takeover interest from private equity heavyweights Apollo Global Management and KKR, as well as French advertising firm Havas.

WPP, valued at around £8.5 billion ($10.4 billion), has faced revenue pressures from shifting digital ad budgets and competition from tech-driven platforms. A potential buyout could represent one of the largest private equity deals in the global advertising sector in recent years.

While neither WPP nor the prospective bidders commented publicly, investors appeared encouraged by the prospect of renewed consolidation in the European media landscape.

Broader Market Sentiment: A Hangover from Last Week

Monday’s declines come after a volatile week in which European and global markets were rattled by valuation concerns in the AI sector, particularly following steep drops in U.S. tech stocks such as Nvidia, Microsoft, and Palantir Technologies.

Analysts say the correction in AI-related equities has spilled over into broader markets, triggering a risk-off mood as investors reassess the sustainability of high-growth valuations.

“After months of relentless gains in AI-linked names, markets are now grappling with reality — stretched valuations, tighter liquidity, and uncertainty about future rate policy,” said Chris Beauchamp, chief market analyst at IG Group. “Europe is feeling those tremors, especially as investors reposition into defensive sectors.”

U.S. Rate Expectations Cloud Global Outlook

Adding to the uncertainty, recent comments from Federal Reserve officials have led investors to scale back expectations for a December interest rate cut.

According to the CME Group’s FedWatch Tool, markets now assign just a 56.1% probability that the Fed will hold rates steady at its next meeting — down from 95% odds of a cut one month ago.

Fed policymakers, including Chair Jerome Powell, have struck a cautious tone in recent remarks, emphasizing that while inflation has eased, it remains above the central bank’s 2% target. Powell last week said the Fed “needs greater confidence that inflation is sustainably moving down” before loosening policy further.

The repricing of rate expectations has strengthened the U.S. dollar and pushed Treasury yields higher, putting pressure on European bond and equity markets.

Asia-Pacific and U.S. Futures Mixed

Across the Asia-Pacific region, markets delivered mixed performances as investors digested fresh geopolitical tensions between Japan and China. Beijing issued a travel and education advisory warning its citizens to reconsider visiting or studying in Japan, citing “rising anti-China sentiment.”

Japan’s Nikkei 225 slipped 0.3%, while Hong Kong’s Hang Seng Index fell 0.5%. Mainland China’s CSI 300 edged down 0.2%.

Meanwhile, U.S. stock futures were mixed in early Monday trading following a choppy week on Wall Street. The Dow Jones Industrial Average futures hovered near flat, while the S&P 500 and Nasdaq-100 futures showed mild gains.

“Investors are recalibrating after last week’s rotation out of tech and into value sectors,” said Victoria Scholar, head of investment at Interactive Investor. “The mood remains cautious as traders await clarity on Fed policy and the trajectory of inflation data once government reporting resumes post-shutdown.”

Quiet Day Ahead for Europe

There were no major corporate earnings or economic data releases scheduled in Europe on Monday, leaving markets to take cues from global developments and sector-specific news.

Analysts expect trading to remain subdued until midweek, when key U.S. inflation data and remarks from several European Central Bank officials could provide direction.

“Markets are lacking a clear catalyst today,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown. “With few data points to guide investors, sentiment is being driven largely by external factors — particularly the Fed and the lingering AI valuation debate.”