On Friday, European stocks closed firmly higher, reflecting positive investor sentiment following evidence of slowing inflation in the Eurozone. This trend not only favors the credit outlook for the bloc’s corporate sector but also paves the way for potential interest rate cuts by the European Central Bank (ECB). The Eurozone’s Stoxx 50 added 0.7%, closing at 5,068, marking an impressive 4% surge for the week. Meanwhile, the pan-European Stoxx 600 advanced 0.5%, reaching a new record high of 528, which translates to a 2.7% jump over the week.

Lower-than-expected inflation rates reported in France and Spain have significantly bolstered market expectations for an interest rate cut by the ECB in October, with approximately 70% of the market currently pricing in this possibility. The prospect of easier monetary policy is a critical driver of market optimism, as it suggests a supportive environment for economic growth and corporate earnings.

Investor sentiment was further buoyed by the Chinese government’s efforts to stimulate the economy, which were announced earlier in the week. The supportive measures have not only positively impacted the overall market but also significantly benefitted companies with substantial exposure to the Chinese market. As a result, luxury brands, particularly those connected to the Chinese consumer base, saw notable gains.

LVMH, one of the heavyweight luxury brands, added an impressive 3.7% to its stock price, fueled by the company’s increased stake in Moncler’s investors, Double R. This strategic move reflects LVMH's commitment to enhancing its portfolio amid a favorable market backdrop. Other luxury brands also experienced robust gains, with BMW, Mercedes, and Volkswagen all jumping between 3.5% and 2%, highlighting the resilience and appeal of the luxury sector.

In summary, the combination of slowing inflation in the Eurozone and favorable economic policies from China has created a conducive environment for European stocks, resulting in substantial weekly gains. As the market continues to respond to these economic signals, investors remain optimistic about the potential for sustained growth and profitability within the corporate sector.

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