Europe’s main stock indexes pared losses after a sharp sell-off last week as investors looked ahead to the political situation ahead of French parliamentary elections.
advertisementEuropean stock markets have stabilized this week after a sharp sell-off due to political uncertainty. French bond yields have stabilized following the first bond sale since President Macron called early elections, signaling some fading of risk-averse sentiment. Across the Atlantic, US markets continue to hit new all-time highs, driven by AI stocks. In Asia, major indexes have shown mixed results this week.
In the commodity market, crude oil prices hit their highest in nearly two months on optimistic demand prospects as the Northern Hemisphere enters a hot summer. A pullback in U.S. inventory data also added momentum to the rise in crude oil prices. Both Brent and WTI crude futures rose for a second consecutive week, rising 3.8% and 4.1%, respectively, this week. The rise in crude oil prices boosted shares of major oil and gas producers such as Shell and BP.
Europe
The Bank of England left its policy rate unchanged at 5.25%, as widely expected, but consensus suggests it is likely to cut rates in August. UK inflation eased to its target level of 2% in May, a positive sign for the bank to start cutting rates at its next meeting.
The Swiss National Bank cut interest rates for the second time, taking its benchmark interest rate to 1.25%, maintaining its position as the leading central bank in cutting interest rates, while the Norwegian central bank kept its benchmark interest rate unchanged at 4.5% and indicated it intends to keep it there until the end of the year.
Following the ECB’s rate cut, more central banks are likely to start easing monetary policy. Lower interest rates and easier liquidity are usually a good sign for stock markets.
The weekly performance of Europe’s major benchmark indexes was mixed, with the Euro Stoxx 600 up 0.31%, the DAX down 0.15%, the CAC 40 down 0.48% and the FTSE 100 up 1.33%. Strong performances in bank and energy stocks highlighted the recovery in sentiment. Over the five trading days, HSBC rose 2.4%, UBS up 0.32%, Shell up 0.87% and BP up 1.31%. ASML shares also rose 0.61% from the previous week, following the rise in AI stocks on Wall Street.
In contrast, luxury consumer goods stocks continued to struggle amid price cuts in China: LVMH and Christian Dior both fell 3%, Richemont was down 6% and L’Oreal was down 2.7% compared to the previous week. Furthermore, the French market was particularly pressured by banking and renewable energy stocks, with BNP Paribas down 2.5%, Total Energy down 2.4% and Crédit Agricole down 4.2% over the five-day trading period.
In currencies, the euro was flat against the US dollar but remained low at just above 1.07. The euro strengthened against the British pound following the Bank of England’s interest rate decision as the market strongly expects the Bank of England to cut interest rates in August.
Wall Street
US stock markets continued to hit new highs on an AI-driven rally, with the S&P 500 briefly topping 5,500 for the first time on Friday. Over the five-day period, the Dow Jones Industrial Average rose 1.41%, the S&P 500 rose 0.77% and the Nasdaq rose 0.16%. However, signs of profit-taking emerged in technology stocks, with NVIDIA shares plummeting on Friday after overtaking Microsoft and Apple to become the No. 1 company by market capitalization earlier in the week. The company is now No. 2 as of Friday’s close.
By sector, eight of the eleven sectors increased week-on-week, with financials leading the way with a 1.92% gain. Technology stocks lost momentum, rising only slightly by 0.7%, while materials, real estate, and utilities lagged behind, declining by 0.02%, 0.26%, and 0.43%, respectively.
U.S. retail sales fell short of expectations in May, suggesting that rising home prices and interest rates have curbed consumer spending, but the data reinforces expectations of multiple rate cuts by the Federal Reserve, which is seen as a boon for stocks.
Asian Market
Asian markets are heading for a mixed end to the week, with Australia’s ASX 200 up 0.48%, Japan’s Nikkei 225 down 0.38% and China’s Hang Seng Index up 2.07% over the past five trading days as of 3:30 a.m. CEST.
The Reserve Bank of Australia, as expected, kept its policy rate unchanged at 4.35% for the fifth consecutive time, but did not provide any clear guidance on the direction of interest rates. The People’s Bank of China also kept its one- and five-year prime mortgage rates unchanged, but the recent weak CPI data may prompt the bank to implement further stimulus measures.
