After remaining largely range bound in Q3, the Europe 50 (or Euro Stoxx 50) made a sharp dip to below the 3,000 support level in October. The leading blue-chip index recovered losses quickly and then rose steeply during the first couple of weeks of November. Since then, the Europe 50 not only exhibited lower volatility, but also maintained an uptrend, breaching the 3,570 resistance level on December 28.

The first quarter of 2021 is unlikely to be as dramatic for European stocks. Analyst suggest taking a cautiously bullish approach, since many of these stocks have already baked in the good news. However, the Europe 50 is still below the pre-pandemic highs and there is room for upside.

The IHS Markit Eurozone manufacturing PMI climbed to 55.5 in December, from a reading of 53.8 in November, according to flash estimates. The latest reading points to the highest growth in the index in 31 months due to a spike in the exports of goods. For January, the manufacturing index is expected to remain in the expansion zone, but decline slightly to 55.

The Eurozone unemployment rate declined slightly to 8.4% in October, versus a revised rate of 8.5% in the prior month and down from the more than two-year high level of 8.7% recorded in July. The rate is expected to rise again to 8.5% in November, with some countries reimposing restrictions amid a rise in covid-19 cases.

Eurozone's retail trade grew 1.5% in October, after declining 1.7% in September. The latest reading was helped by a 2% rise in the sales of non-food products, which rebounded from a 1.9% drop in the earlier month. Retail sales are again expected to come under pressure amid restrictions imposed to curb the new coronavirus variant detected in the UK. Retail sales are expected to be 4.6% in November.

Consumer prices declined for a third straight month by 0.3% year-over-year in November, notching the steepest drop since April 2016, due to subdued demand amid the covid-19 crisis. For December, the inflation rate is expected to ease to 0.4%.

The European Central Bank held its main refinancing rate at 0%, while the deposit rate was kept at a record low of -0.5%. However, the central bank expanded its Pandemic Emergency Purchase Programme by another €500 billion at its latest meeting. The ECB is expected to maintain rates at its next meeting.

The Eurozone economy shrank 4.3% during the third quarter, versus a record contraction of 14.7% in the prior period. For the fourth quarter, the economy is projected to contract by 4.8%.

The new trade deal between the EU and UK and Joe Biden taking over as the US President will remain in focus.

Updates on the rollout of covid-19 vaccines will impact European stocks and the Europe 50 index.