A surprisingly stagnant Ifo economic index has made investors on Europe's stock markets cautious at the start of the week.

The Dax and the EuroStoxx50 held on to their narrow gains on Monday morning and stood at 18,718 and 5043 points respectively. Contrary to expectations, the mood in the German economy has not brightened any further. The Ifo business climate stagnated in May at the previous month's level of 89.3 points, according to the Munich-based Ifo Institute's survey of around 9,000 managers. The barometer had previously climbed three times in a row. Experts surveyed by Reuters had expected an increase to 90.4 points.

"The further rise in business expectations will not be reflected in a better business situation so quickly," said Commerzbank chief economist Jörg Krämer. "We do not expect to see a more sustained recovery in gross domestic product until the middle of the year, although the upward trend should be moderate because the German government is not taking decisive action to tackle the long-standing erosion of the quality of business locations."

INFLATION DATA AT A GLANCE

Investors are now turning their attention back to monetary policy. Hopes of a first interest rate cut by the Fed in September were initially sparked last week by the latest US economic data. However, the minutes of the last Fed meeting then dampened sentiment. "Investors are now hoping that the easing price pressure will be confirmed by the inflation data from Germany, the eurozone and the USA, which is due on Wednesday," said Jochen Stanzl, chief analyst at broker CMC Markets. Traders are also keeping an eye on further speeches by representatives of the Fed and the European Central Bank (ECB).

According to its chief economist Philip Lane, the ECB is in the starting blocks for an interest rate cut in the coming week. "If there are no major surprises, what we are currently seeing is enough to take away the top level of the restriction," Lane told the Financial Times.

In contrast, the probability of monetary easing in the Fed's interest rate decisions in September, November and December is currently estimated at around 50, 60 and 85 percent on the futures markets.

CECONOMY IN DEMAND AFTER UPGRADE

Among the individual stocks in demand were shares in Ceconomy, which advanced by a good three percent. The experts at investment bank Baader Helvea had upgraded the shares of the electronics retail holding company to "Add" from "Reduce". One of the reasons for this was the prospect of greater demand for televisions during the European Football Championship and the Olympic Games.

On the stock exchange in Zurich, EFG International climbed by almost four percent. According to insiders, the Swiss asset manager Julius Baer has been in talks about a possible merger with its smaller rival in recent months. However, two people familiar with the situation told the Reuters news agency that the negotiations have now been halted.

In Oslo, a virus discovery hit the shares of salmon supplier Bakkafrost. The shares of the company based on the Faroe Islands lost more than 2.5 percent and, at 587.50 kroner, were the cheapest they had been since January. According to Bakkafrost, it has detected infections with the ISA salmon virus in two stables at one of its farms.

(Report by Zuzanna Szymanska, edited by Ralf Banser. If you have any queries, please contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and the economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).)