European stock markets look set to carry over negative sentiment from the previous week, as fears over rising borrowing costs erode confidence in the recent equity bull run, but investors are over reacting to the selloff in bonds, according to Stephen Pope, Head of Equity Research at Cantor Fitzgerald Europe.
"Froth is coming off the market," Pope told CNBC.com, "I'm still positive on (equities)."
The 10-year Treasury yield rose above 5.2% Friday on fears the Federal Reserve would rekindle its interest-rate tightening cycle, causing weakness in European stocks, but investment managers could see this "slight correction" as an opportunity to increase share buybacks at more attractive prices, according to Pope.
Uncertainty about the coming week in stocks will get little reassurance in the form of corporate and economic news, but Pope told CNBC.com that merger and acquisition activity is likely to continue despite the prospect of rising borrowing costs.
"M&A will continue because it's done on sound reasons," he said, conceding that the rate of deals coming through may slow a little. Pope singles out the steel, machinery and metals & mining sectors as being ripe for consolidation.
Also in focus next week will be annual factory gate inflation, which is expected to have held broadly steady throughout May, Reuters reported. Recent surveys have suggested manufacturers have greater pricing power in the current market.
And first-quarter earnings are due out from Spanish fashion distributor Industria de Diseno Textil, Wednesday. The results are expected to show a robust like-for-like sales performance, due to strong European demand, according to analysts surveyed by Thompson Financial.