Stocks Drop on US Economic Data and Europe Fear: Markets Wrap

(Bloomberg) — The stock market ended the week on a downbeat note after disappointing U.S. economic data, with traders also shunning riskier assets on concerns that a political crisis in France is deepening.

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US stocks curtailed this week’s rally after a gauge of consumer confidence unexpectedly fell to a seven-month low, as high prices continued to take a toll on views on personal finances. While Wall Street continued to price in about two rate cuts this year, Loretta Mester, president of the Federal Reserve Bank of Cleveland, said she would like to see a few more months of good inflation data before considering easing policies.

“While we on Wall Street obsess over the rate of change in inflation, many consumers don’t care and are still struggling with the cumulative increase relative to their wage growth,” said Peter Boockvar in the Boock Report. “The bottom line is simply the inflationary pressures that lower- and middle-income consumers are feeling.”

ECB officials see no reason to worry about the turmoil on the French markets

Traders rushed to the safest corners of the market on Friday, with French stocks losing around $200 billion in market capitalization this week – or about the size of the Greek economy – following President Emmanuel Macron’s decision to call early elections. Government bonds have been at the heart of the crisis, with the premium investors demand for owning 10-year debt over safer German counterparts heading for its biggest weekly rise on record.

“The situation in Europe is starting to get a bit risky,” said Matt Maley of Miller Tabak + Co. “The move is far from turning into a new sovereign debt crisis, but there are concerns about skyrocketing sovereign debt and bloated budgets, developments in Europe (and especially France) are causing some concern in the market.”

The S&P 500 fell to about 5,400 points. The Stoxx Europe 600 fell 1.2%. France’s CAC 40 Index extended losses to more than 6% this week, on track for its biggest drop since March 2022. The slump put the country at risk of losing its crown as Europe’s largest stock market.

The ten-year government bond yield fell by four basis points to 4.21%. The dollar rose to its highest point since November. The euro is the worst performing major currency against the dollar this week.

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Traders’ concerns grew after a coalition of left-wing parties in France presented a manifesto aimed at unraveling most of its seven years of economic reforms and putting the country on a collision course with the European Union over fiscal policy.

“Given the relevance of the French economy to the EU and the flashbacks to Brexit, we are sympathetic to the flight to quality and the fact that one should seriously consider the longer-term prospects for the EU in the event that France Britain follows suit and leaves the building, so to speak,” said Ian Lyngen and Vail Hartman of BMO Capital Markets.

“The election game continues, crystallizing a toxic set of risks that threaten a prolonged phase of dysfunction in the EU and could threaten a new euro crisis in the tail,” Evercore’s Krishna Guha said. “It is difficult to overestimate the importance for markets and the functioning of the EU that France is still seen as a ‘core country’ with a sufficiently regular government.”

According to Thierry Wizman of the Macquarie Group, France is heading towards one of two extreme political scenarios.

“Neither assembly is dedicated to pro-market principles, nor to fiscal responsibility, nor to the single currency.”

Transactions of more than $1 million between the dollar-denominated bonds of major French banks have surged in recent days and are now far more common than large-value transactions in their euro zone counterparts, based on Trace data collected by Bloomberg. That has hit the debt levels of major lenders such as BNP Paribas SA and Credit Agricole SA.

Business highlights:

• Tesla Inc. Investors reapproved Elon Musk’s compensation and authorized the company’s move to Texas, expressing confidence in the CEO.

• Adobe Inc. forecast strong future sales for its creative products, suggesting customers will embrace the company’s new artificial intelligence-based tools.

• Furniture retailer RH reported a heavier-than-expected loss for the first quarter.

Some of the major moves in the markets:

Shares

• The S&P 500 was down 0.5% as of 10:36 a.m. New York time

• The Nasdaq 100 was little changed

• The Dow Jones Industrial Average fell 0.8%

• The Stoxx Europe 600 fell 1.2%

• The MSCI World Index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%

• The euro fell 0.6% to $1.0675

• The British pound fell 0.8% to $1.2663

• The Japanese yen fell 0.2% to 157.33 per dollar

Cryptocurrencies

• Bitcoin was little changed at $66,679.65

• Ether fell 0.2% to $3,471.47

Bonds

• The yield on ten-year government bonds fell by four basis points to 4.21%

• The German ten-year yield fell by 12 basis points to 2.35%

• The British ten-year yield fell by seven basis points to 4.05%

Raw materials

• West Texas Intermediate crude was little changed

• Spot gold rose 1.2% to $2,330.84 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from Andre Janse van Vuuren, Macarena Muñoz, Jan-Patrick Barnert, Alice Gledhill, Sagarika Jaisinghani and Tasos Vossos.

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