The European markets continued to underperform global peers following the French political turmoil, although the euro rebounded from a two-year low against the dollar.
The European stock markets continued to be under pressure, weighed down by both global uncertainties and French political turmoil. In contrast, the post-Trump rally continued on Wall Street, with both the Dow and the S&P 500 reaching new highs. In Asia, equities were mixed as the Australian markets hit another record, and the Chinese markets were higher amid stimulus optimism. However, Japanese stocks were on a negative note.
In commodities, both gold and crude oil slid following ceasefire talks in the Middle East. In currencies, the US dollar’s rally stalled following sliding US government bond yields. The euro rebounded from a two-year low against the dollar. However, the Canadian dollar and Mexican Peso weakened after Trump vowed to impose 25% tariffs on goods from both countries.
Europe
Major European benchmarks were mixed this week, with the pan-European Stoxx 600 index declining 0.23%, France’s CAC 40 slipping by 2%, while Germany’s DAX climbed 0.6%, and the UK’s FTSE 100 gained 0.2%.
The French stock markets rebounded on Thursday after Prime Minister Michel Barnier scrapped plans to raise taxes on electricity, alleviating concerns about a government collapse following pressure from the far-right National Rally (NR) party. However, uncertainties persist as the NR demands further concessions on the budget plan, with a Monday deadline looming.
The French 10-year government bond yields slid as the selling pressure on French assets temporarily subsided. The spread between French and German 10-year bond yields, a key measure of market anxiety, narrowed by four basis points but remains near a decade-high. Investors are awaiting an update on France’s credit rating by S&P Global on Friday, following a downgrade in May. Both Fitch Ratings and Moody’s Ratings have also recently lowered their outlooks on French credibility, citing doubts about France’s ability to meet its 2025 deficit target.
On Thursday, France’s benchmark government bond yield matched Greece’s peer for the first time, sparking concerns of a Greece-style crisis if the country fails to manage its government debts. However, the euro steadied this week as the weakness has been priced in amid global jitters. Michael Brown, a senior research strategist, believes that the impact on the euro is limited: “The implications could be relatively limited, the list of EUR bearish factors is already an incredibly long one (rapid disinflation, geopolitical tensions, China slowdown, domestic manufacturing depression, German political tumult, etc.” The euro has rebounded to .0670 at 4:30 am CET after plunging against the dollar to a two-year low of 1.0330 last Friday.
At a stock sector level, the auto sector continued to be under pressure amid Trump’s tariffs threat and tightened trade relations with China, with the euro Stoxx 600 auto index down 0.73% weekly. The energy sector also underperformed, down 1.9% week on week, due to sliding crude oil prices. Banking stocks were also hit by French political uncertainties, with the sector down 0.4% from last week. The Luxury 10 index saw a slight rebound, up 1.6% weekly on optimism towards China’s further stimulus measures.
On the economic front, Germany’s headline inflation rose 2.2% in November, up from 2% in the previous month but below the estimated 2.3%. The data may indicate an upward trend in inflation in the Eurozone. Markets will closely watch the upcoming Eurozone’s flash Consumer Price Index (CPI) to be released later today.
Wall Street
The US stock markets are set for weekly gains in a shortened week due to the Thanksgiving holiday. A resilient economy, cooling inflation, and Trump’s presidency continued to fuel the rally on Wall Street. The Dow Jones Industrial Average rose 1%, the S&P 500 was up 0.49%, and the Nasdaq Composite climbed 0.3% on a weekly basis. Both the Dow and the S&P 500 have reached fresh highs.
At the sector level, most sectors posted weekly gains, with the interest rate-sensitive sector, Real Estate, leading broad gains. However, the technology sector underperformed, likely caused by sector rotations. The energy sector was the biggest laggard due to sliding oil prices.
The US Personal Consumption Expenditure Index (PCE) rose 2.3% year on year in October, up from 2.1% in September and in line with expectations. The data confirmed a cooling inflationary trajectory in the US and consolidated expectations of a 25 basis point rate cut by the Fed in December. The US government bond yields retreated as bond traders reassessed the impact of Trump’s tariffs, sending the US dollar index to a two-week low.
Asia-Pacific
Most benchmarks across the Asia-Pacific region are set to finish the week higher. The ASX 200 repeatedly hit a new record, up 0.39% weekly, led by technology and healthcare stocks. Chinese markets were more than 2% higher for the week. However, Japan’s Nikkei 225 extended the second-straight weekly decline due to a strengthening Yen.
Chinese stock markets remained under pressure due to economic concerns, with the Hang Seng Index down 0.5% and China A50 sliding 0.64% for the week. The Chinese Yuan continued weakening against the US dollar, with the pair of USD/CNH hovering around a four-month high. Japan’s Nikkei 225 was down more than 1% this week due to a resurgence in the Yen.
