The European stock markets are poised to end the week on a negative note due to political uncertainties, despite a short-lived rebound induced by the Federal Reserve (Fed). In contrast, Wall Street maintained its bullish momentum, driven by a tech rally. Meanwhile, Asian stock markets were affected by declining metal prices and subdued Chinese economic data.
Europe
Major European benchmark indices declined for the week following a surprising surge in far-right power in the EU Parliamentary Elections. The selloff was particularly pronounced in French markets, with the CAC 40 falling by 3.67% from the previous week after President Emmanuel Macron called a snap election. Over the five-day trading period, the Euro Stoxx 600 lost 1.77%, the DAX fell 1.58%, and the FTSE 100 slipped 0.99%
At a sector level, French banking stocks led the broad losses amid investor concerns over potential disruptions to public financial stability following the far-right surge in the EU elections. BNP Paribas SA's shares plummeted nearly 10%, while Credit Agricole's stocks slumped 7.8% from last week. Renewable energy and defence stocks also underperformed due to uncertainties, with TotalEnergies down 4%, Airbus SE falling 5.2%, and Safran slumping 5.4%
Additionally, German auto maker shares were hit by concerns over potential retaliation from China on tariffs. Porsche AG saw a decline of 7.9%, while Volkswagen AG fell 7.3% over the last five trading days. Luxury consumer stocks were also negatively impacted by rising trade tensions, with LVMH sliding 3.5% and Hermes slipping 2.6%.
Technology stocks proved to be the most resilient sector, mirroring Wall Street’s performance. However, major tech shares showed only flat weekly performance, with ASML edging up by 0.15% and SAP climbing 1% from last week
The euro weakened against other peers in the G-10 group due to political turmoil. At 2 am CEST on Friday, the euro fell 0.56% against the US dollar to 1.0741 over the past five trading days. It also weakened against the British Pound by 0.5% to 0.8419 from last week, marking its lowest level since August 2022.
Wall Street
The US stock markets surged to new highs following the Fed’s rate decision, with the Apple-led tech rally contributing to bullish momentum. The S&P 500 gained 1.62% over the five-day trading period, marking its 29th record high of the year on Thursday and surpassing 5,400 for the first time in history. The Nasdaq, which is heavily weighted towards technology stocks, performed particularly well, rising 3.11% from the previous week. In contrast, the Dow Jones Industrial Average lagged behind, declining 0.39% compared to a week ago, weighed down by losses in industrial and banking stocks.
At a sector level, three out of eleven sectors posted gains from a week ago, with technology leading the way, up 5.6%. However, telecommunication, energy, financials, and consumer staples all underperformed, each declining by more than 1%.
Apple’s shares surged 10% over the past five trading days, reclaiming its position as the world’s most valuable company, fueled by its AI adoption announcement on Monday. Nvidia’s shares rose 7% as trading began following its 10-for-1 share split this week. Broadcom’s stocks soared nearly 20% driven by strong quarterly results and the announcement of a 10-for-1 stock split.
The US reported slightly cooler-than-expected inflation data for May. The headline US consumer price index (CPI) rose 3.3% from a year ago, which was slightly below the expected 3.4%. Although the data remained above the Fed’s target of 2%, it indicated that inflation is on a downward trajectory.
The Fed kept the interest rate unchanged at between 5.25% and 5.5%, in line with expectations. However, the dot plot indicated a forecast of only one rate cut for this year and four cuts by 2025. This projection marks a significant decrease from the three cuts projected for 2024 in March. Despite this, the bond markets reacted to the Fed meeting in a dovish manner, with US 10-year government bond yields falling by 20 basis points to 4.24% this week.
Asian Markets
Major Asian stock indices showed mixed performance for the week, with the Australian ASX 200 declining by 1.71%, the Japanese Nikkei 225 increasing by 0.48%, and the Chinese Hang Seng Index slumping by 2.19%.
The Bank of Japan kept the policy rate unchanged as widely expected and signaled a potential reduction in bond purchases at the next meeting. This dovish stance led to a decline in the Japanese Yen and boosted Japanese stock markets, which rallied on Friday.
The Chinese stock markets experienced declines due to disappointing economic data and escalating trade tensions with both the EU and the US. China reported weaker-than-expected CPI data for May, suggesting sluggish domestic consumer demand. However, these figures could prompt the Chinese government to implement additional stimulus measures.
