Weekly Recap: European markets stabilise as French election approaches

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The European stock markets stabilised this week after a sharp decline due to political uncertainties. The French government bond yield held steady following the first bond sale since Macron called for a snap election, suggesting that risk-off sentiment has somewhat faded. Across the Atlantic, the US markets continued to reach all-time highs, driven by AI stocks. In Asia, major indices paint a mixed picture for the week.

In commodities, crude prices hit a nearly two-month high on an optimistic demand outlook as the northern hemisphere enters a hot summer. A withdrawal in the US inventory data has also fuelled its upside momentum. Both Brent and WTI futures are set for their second weekly gains, up 3.8% and 4.1% this week. Rising crude prices have buoyed major oil and gas producers’ share prices, such as Shell and BP.

Europe

The Bank of England held the policy rate unchanged at 5.25%, as widely expected, but it will most likely cut the interest rate in August, according to consensus. The UK’s inflation eased to the target level of 2% in May, which is an encouraging sign for the bank to commence a cut in its next meeting.

The Swiss National Bank delivered a second rate cut, bringing its interest rate to 1.25%, maintaining its position as a frontrunner in lowering interest rates among central banks. Meanwhile, Norway’s central bank held its policy rate at 4.5% and indicated it would maintain this level until the end of the year.

Following the ECB’s rate cut, more central banks are likely to start loosening their monetary policies. Lower rates and liquidity relaxation are usually a good sign for equity markets.

Major European benchmark indices are mixed in their weekly performance, with the Euro Stoxx 600 up 0.31%, the DAX losing 0.15%, the CAC 40 down 0.48%, and the FTSE 100 climbing 1.33%. Banks and energy stocks outperformed, highlighting recovered sentiment. Over five trading days, HSBC was up 2.4%, UBS rose 0.32%, Shell climbed 0.87%, and BP advanced 1.31%. Following the AI stocks’ rally on Wall Street, ASML’s shares also rose 0.61% from last week.

In contrast, luxury consumer stocks remained weak due to price cuts in China. Both LVMH and Christian Dior slipped 3%, Richemont slumped 6%, and L’Oréal was down 2.7% from last week. Additionally, French markets remained under pressure, particularly in banking and renewable energy stocks, with BNP Paribas sliding 2.5%, TotalEnergies down 2.4%, and Crédit Agricole falling 4.2% over a five-day trading period.

In currencies, the euro was flat against the US dollar but remained at a low level, just above 1.07. The single currency is higher against the British pound following the BOE’s rate decision, as markets highly anticipate a rate cut by the bank in August.

Wall Street

The US stock markets continued to reach new highs amid an AI-led rally, with the S&P 500 brieftly topped 5,500 for the first time on Friday. Over five trading days, the Dow Jones Industrial Average was up 1.41%, the S&P 500 rose 0.77%, and the Nasdaq climbed 0.16%. However, signs of profit-taking in the technology shares emerged, as Nvidia’s stocks retreated sharply on Friday after surpassing Microsoft and Apple to become the most valuable company earlier in the week. The company is now sitting in second place at the close on Friday.

At a sector level, eight out of eleven sectors posted gains from a week ago, with the financial sector leading the way, up 1.92%. The technology stocks lost steam, slightly up 0.7%. In the meantime, the Materials, Real Estate, and Utilities are the laggards, down 0.02%, 0.26%, and 0.43%, respectively.

The US reported weaker-than-expected retail sales for May, indicating high shelter prices and interest rates dampened consumer spending. However, the data is seen as positive for the stock markets by reinforcing the bets for more than one rate cut by the Fed.

Asian markets

Asian markets are heading for a mixed close for the week, with the Australian ASX 200 up 0.48%, the Japanese Nikkei 225 decreasing by 0.38%, and the Chinese Hang Seng Index climbing 2.07% over the last five trading days at 3:30 am CEST.

The Reserve Bank of Australia held its Official Cash Rate at 4.35% for the fifth time in a row, as expected. However, it did not provide a clear direction for its rate path. The People’s Bank of China also kept its 1-year and 5-year Loan Prime rates unchanged. Nevertheless, tepid CPI data recently released may prompt the bank to impose more stimulus measures.