European equity markets were broadly flat during May. Most indices were higher by mid-month. However, record-high oil prices along with weakening corporate-profit outlooks weighed on market sentiment.Germany, the Netherlands and France ended the month in positive territory, while Spain, Italy and Switzerland were slightly negative. Sector divergence was once again apparent, with the oil & gas sector registering the biggest gains, supported by the high price of oil.Basic materials and utilities were also strong while financials and consumer-related sectors were the laggards. Economic data continued to weaken in general, despite some indicators pointing to the contrary.
The key news, however, was the fact that eurozone CPI inflation bounced back to its recent high of 3.6%, reinforcing a growing consensus that the European Central Bank will not be cutting interest rates this year.