European stock markets are poised for a muted and mixed opening on Thursday, signaling that the recent relief rally fueled by easing US policy concerns may be losing steam.

After significant gains earlier in the week, investor caution appears to be returning as underlying economic and trade uncertainties persist.

Early indications point towards a flat to slightly lower open across major European bourses.

According to data from IG, the UK’s FTSE 100 is expected to edge just 6 points higher to 8,404, while Germany’s DAX is seen opening flat at 21,933. France’s CAC 40 is projected to dip 2 points to 7,475, and Italy’s FTSE MIB is anticipated to start 53 points lower at 35,942.

This lackluster outlook follows strong performances on Wednesday, where European markets joined a global upswing.

That rally was largely driven by relief after US President Donald Trump seemingly backed away from threats to fire Federal Reserve Chair Jerome Powell and hinted at potential de-escalation in the US-China trade conflict.

US stocks surged significantly on Wednesday, building on Tuesday’s gains, as these immediate concerns subsided.

While S&P 500 futures showed further modest gains overnight and Asia-Pacific markets traded mixed, the initial burst of optimism appears to be giving way to a more sober assessment in Europe.

Earnings and economic data take center stage

With the immediate focus shifting slightly from Washington’s policy pronouncements, investors in Europe will turn their attention to a busy slate of corporate earnings and economic data releases on Thursday.

Key earnings reports are expected from major players including consumer goods giant Unilever, Spanish bank Banco Sabadell, French pharmaceutical firm Sanofi, Italian energy company Eni, banking group BNP Paribas, and software company Dassault Systemes.

On the data front, crucial releases include French consumer confidence figures and updated statistics on new car registrations across the European Union, providing fresh insights into consumer sentiment and industrial activity.

Diamonds lose sparkle

Highlighting sector-specific pressures, London-listed mining giant Anglo American announced a significant cutback in diamond production.

In a trading update, the company revealed it had reduced rough diamond output by 11% to 6.1 million carats during the first quarter.

Anglo American attributed this decision to tepid demand and falling prices for diamond jewelry.

“Consumer demand for diamond jewellery in the United States over the year-end holiday season was in line with expectations, however, rough diamond demand in the first quarter remained subdued,” the company stated, explaining that middlemen remained cautious about restocking inventories due to an existing surplus of polished diamonds.

While noting tentative signs of price stabilization, Anglo warned, “ongoing macroeconomic uncertainty, in particular the impact of US tariffs, will likely result in continued cautious Sightholder purchases in the near term.”

The company reaffirmed its intention to eventually sell its De Beers diamond subsidiary “when market conditions allow,” amidst an 11% decline in its share price so far in 2025.

Bear market rally or sustainable recovery?

The sharp rebound seen earlier in the week has also drawn cautious commentary from market strategists.

Analysts at Wolfe Research, Rob Ginsberg and Read Harvey, noted to CNBC late Tuesday that “Bear market rallies are the most violent.”

While acknowledging the strong internal market breadth during Tuesday’s 2.5% S&P 500 gain, they warned that such rallies “make you a believer” but may not signify a true end to the underlying downturn.

Citing longer-term trends, they maintain a bear market stance and are looking for a “cluster” of technical signals, including the S&P 500 decisively breaking above resistance levels between 5500 and 5700 (the index closed Wednesday at 5,375.86), before confirming a sustainable shift.

Recession risks not fully priced in?

Adding another layer of caution, strategists at Deutsche Bank suggested that despite recent tariff-fueled recession fears, the market hasn’t fully factored in the possibility of an economic downturn.

“It’s clear that investors aren’t fully pricing a recession in just yet,” wrote strategist Henry Allen.

He pointed out that recent equity declines, credit spread widening, and oil price drops have been shallower than those seen in previous recessions.

Allen argued that markets likely see a recession as avoidable, especially “if the tariffs don’t come into force after the latest 90-day extension.”

However, this also implies “significant downside risks” for stocks should a recession indeed materialize.

As European markets prepare to open, the focus shifts back to fundamentals and regional developments after a brief, globally-driven relief rally appears to be pausing for breath.

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