Eurozone markets sold off last week as investors raise concerns over outcome of French Presidential election. Meanwhile US markets power ahead despite the Fed stating that it sees just one rate cut this year.
So, what do we know?
(A forex, index, and commodity market review)
Weekly change (amount change and percentage change on the week)
FTSE +68 +0.83%
DAX -548 -2.95%
DOW -240 -0.62%
S&P +86 +1.61%
NASDQ +684 +3.50%
NIKKEI +62 +0.16%
Hang Seng -348 -1.92%
French equities tumbled last week as investors fret over the impact that a far-right government might have with the possibility of Truss-style debt crisis. The CAC40 fell sharply last week with losses accelerating Friday as French banking stocks took a big hit, dragging down the CAC40 2.7% on the day which left the index down over 6% on the week. This was the worst weekly performance since March 2022, but the ramifications did not stop there. French bonds were also hit with the spread between German and French bond yields, used a stress monitor within the Eurozone bond market, widening to 0.82%, the largest since 2017. The concern for investors is the plans of a far-right government run by Marine Le Pen’s Rassemblement National which could see increased un-costed spending and more confrontation with Brussels and the direction of the Eurozone bloc.
The problem for Macron is that he was hoping to forge an alliance with the left to thwart RN but that looks less likely as the leftwing forges its own alliances.
What this all means is that Macron’s centrist alliance is in danger of being wiped out by Marine Le Pen’s RN and the left-wing alliance. The scale of the sell off in French stocks will undermine other states within the Eurozone bloc which are also sensitive to which party forms the next French government; a government that could be more antagonistic towards the eurozone and the EU. The FT reported that Barclays had scaled back its “overweight” recommendation for European stocks, advising “caution on the region for now given the political situation in France.” This caution may persist for many months if the election culminating on July 6th results in a far-right government in France.
Meanwhile US equities powered ahead, or at least the Magnificent seven did, with Apple up over 7.9% last week with AI and hardware developments powering the move. Nvidia was also in demand, up another 9.4%. Both stocks are now in the $3 trln bracket valuation. The FOMC, the rate setting committee at the Federal Reserve, met last week, and kept interest rates unchanged as expected. The committee surprised the market by saying they now expected just one rate cut this year, likely in September, which contrasts with forward rate market which imply two rate cuts. Following the conclusion of the FOMC meeting last Wednesday, markets still expect the FOMC to cut rates twice this year.
UK equities continue to trade in limbo ahead of the UK election on July 4th. With UK inflation data due out this week and the Bank of England’s MPC meeting, investors will be looking for guidance about the prospect of a rate cut in August.
EURUSD -0.95 -0.88%
GBPUSD -0.31 -0.24%
USDJPY +0.68 -0.43%
The Dollar rallied last week as turmoil in Eurozone equity and bond markets caused a sell off in the Euro. The move was also supported by the FOMC prediction of just one rate cut in the US this year.
The EURUSD rate fell to its lowest rate since early May whilst against Sterling, the Euro fell to its lowest level since August 2022, just before Truss become Prime Minister for that brief catastrophic spell.
Gold +41 +1.79%
UK OIL +2.91 +3.67%
US OIL +2.93 +3.91%
Oil rebounded last week following the negative outcome of the OPEC+ the previous week and could settle back into the range it had been in since early May, between $80 and $85 per barrel.
What don’t we know….yet? This week’s data and events to watch out for.
An important week for UK markets as the bank of England meets to update its monetary policy. Before that we have UK CPI will of course have a direct bearing on what decision the MPC take.
Monday
China Industrial production and Retail sales. Mixed results with a fall in production offset by an increase in retail sales which should help lift inflation, which is still recovering.
US Empire State Manufacturing. Revering but still not expanding.
Tuesday
Australia Reserve bank of Australia rate decision. No change expected. AUD sensitive
US Core retail sales. +0.2% expected, same as previous month. Minor impact expected on USD unless wide of the consensus.
Wednesday
UK CPI Inflation data. Expected to fall from 2.3% in April to 2% in May. Down to fall in cost of logistics which resulted in a negative price growth in goods. GBP and UK assets sensitive.
Thursday
Switzerland SNB monetary policy meeting. No change expected in rates. CHF sensitive,
UK MPC policy meeting. Despite possibility of the BoE hitting its 2% inflation target, there is little prospect of a rate cut ahead of the UK election on July 4th. Economic growth has picked up and with service sector inflation remaining stubbornly high, the MPC are unlikely to move on rates. The focus for the markets is about the prospects for a rate cut in August which is not certain. GBP and UK assts sensitive to this announcement.
Friday
UK Retail sales. Following the CPI and rate decision its unlikely that this release will have much impact. Expected at +1.6% following last months sharp fall. Weather continues to play havoc with retail spending.
UK, US, Eurozone Flash Manufacturing and Services PMI . A measure of the health of both sectors. An improvement expected in the eurozone and to a lesser extent in the UK. US measures expected to be both lower following the strong Services PMI last month. USD and US assets sensitive.
