Finance

European shares fall after price forecasts, French opinion poll: markets round

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2 days ago

July 2, 2024

European shares fall after price forecasts, French opinion poll: markets round

(Bloomberg) — European shares fell after policymakers said they needed more evidence that price pressures are under control, even as the latest data showed inflation in the euro region easing slightly.

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The Stoxx Europe 600 benchmark fell about 0.5%, led by insurers and carmakers. France’s CAC 40 erased most of Monday’s gains as the country prepares for a second round of elections, while the outlook for French assets remains uncertain. US stock futures fell.

Eurozone consumer prices fell in June in line with economists’ expectations, although the core measure, which excludes volatile items such as food and energy, was unexpectedly unchanged.

After cutting interest rates by a quarter point in June, officials are determining whether inflation will moderate enough to allow further cuts. At the ECB’s annual retreat this week in Sintra, Portugal, President Christine Lagarde and chief economist Philip Lane said there was no convincing evidence yet that the threat was over.

Lagarde “has gotten the message across very well,” said Frederique Carrier, head of investment strategy at RBC Wealth Management. “We don’t expect a change in July, but rather in September and December.”

The rally in European shares has stalled in recent weeks due to political unrest following an early election call in France. The first round of parliamentary elections narrowed the possible outcomes to two – both of which portend continued uncertainty for investors. The second round of voting is scheduled for Sunday.

“We expect that France will be more difficult to govern and that there will be fewer reforms. That is not positive,” Carrier said.

Among individual stocks, food service company Sodexo SA’s turnover did not fall as expected in the third quarter. Tire maker Michelin fell in Paris, with analysts citing a pre-close call after markets closed on Monday.

Shares of HelloFresh SE rose after JPMorgan said data indicates stabilization in the key North American meal kit sector. Siemens Energy AG rose as much as 4.3% after the Financial Times reported that the company plans to hire more than 10,000 new employees in its networking business.

Meanwhile, 10-year Treasury yields offset some of Monday’s rise after speculation that a Donald Trump presidency would lead to wider US budget deficits and higher inflation. A gauge for the dollar rose for a second day.

“The dollar is supported by the overnight rise in US Treasury yields,” said David Forrester, senior strategist at Credit Agricole CIB. “The irony is that it is investor concerns about the sustainability of the US budget that are driving US Treasury yields higher.”

Treasurys have been in turmoil this year as traders have gone back and forth on buying bonds amid signs of cooling U.S. prices and fears of longer yields. Yields on five-year securities have risen more than 20 basis points from a low of about 4.20% just less than three weeks ago.

After last week’s debate damaged Joe Biden’s chances of winning reelection, Wall Street strategists — including those at Goldman Sachs Group Inc., Morgan Stanley and Barclays Plc. – take a fresh look at how a Trump victory could play out on the bond market. They are urging clients to position themselves for persistent inflation and higher long-term interest rates.

Strategists at JPMorgan Chase & Co. on the other hand, said that now is the time to pocket profits on government bonds.

Fed Chairman Jerome Powell’s speech at an ECB forum in Portugal could provide more clues about the policy outlook. Lagarde of the ECB will also speak. Traders will also look at U.S. job vacancy data later Tuesday.

Asian stocks gain

Asian shares rose, led by gains in Japan and Hong Kong. The MSCI AC Asia Pacific Index hit its highest since late May amid a rally in Hong Kong-listed shares of property makers and electric vehicles.

Japan’s stock benchmark inched closer to a record high, supported by gains for financial stocks on prospects of higher interest rates. Domestic 10-year yields continued to rise above 1% on bets that the central bank will raise policy rates.

In China, pessimism about the domestic economy has led to a sharp increase in demand for government bonds. The central bank said it will borrow government bonds from Primary Dealers, a sign it may be considering selling securities to cool the rally.

Yields on Chinese benchmark bonds fell to a record low on Monday as investors worry about long-term economic growth.

In commodities, oil traded near its highest level in two months due to an escalation of tensions in the Middle East and concerns about the quick start of the Atlantic hurricane season. Iron ore remained near the highest close in about a month. Gold was little changed.

Main events this week:

US vacancies, Tuesday
Jerome Powell and Christine Lagarde will speak at the ECB forum in Portugal on Tuesday
China Caixin serves PMI, Wednesday
Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday
US Fed Minutes, ADP Employment, ISM Services, Factory Orders, Initial Unemployment Claims, Durable Goods, Wednesday
The Fed’s John Williams will speak on Wednesday
British general election, Thursday
American Independence Day, Thursday
Eurozone retail sales, Friday
US jobs report, Friday
John Williams of the Fed will speak on Friday