European stocks showed strong gains as investors focused on upcoming elections. France’s CAC40 index rose for a second consecutive day ahead of this weekend’s final round of snap parliamentary elections. Meanwhile, the UK’s general election was underway, with the first official exit poll expected shortly after 10 p.m. local time.
The Stoxx 600 index across Europe climbed 0.5%, driven by gains in automotive and banking sectors. In the absence of trading in US cash markets due to Independence Day, US equity futures remained largely unchanged. However, the S&P 500 and Nasdaq 100 had reached new record highs in a shortened trading session on Wednesday.
Global stocks are poised for their longest streak of weekly gains since March, bolstered by weak US economic data that have reignited speculation of potential rate cuts in September. Reports on Wednesday indicated a contraction in the US services sector and signs of softening in the labor market ahead of Friday’s crucial jobs report.
Justin Onuekwusi, chief investment officer at St James Place, noted, “With the ISM services falling to 48.8, the weakest since the pandemic, and job claims deteriorating, the negative data is paradoxically seen as positive for markets. It feels like September is the date everyone is now looking at.”
In company news, Continental AG surged up to 12% after reporting robust growth in China, while Roche Holding AG saw a decline following disappointing results in a lung-cancer drug trial.
Asian markets also saw strong gains, with Japan’s Topix index hitting a record high. The yen strengthened, albeit briefly touching its lowest level against the dollar since 1986 in the previous session, amid ongoing speculation about the Bank of Japan’s future policy moves.
Ahead of Sunday’s elections in France, Morgan Stanley strategists advised investors to consider buying French stocks, anticipating a market rebound regardless of the election outcome. According to Morgan Stanley analysts Marina Zavolock and Regiane Yamanari, French bonds have already benefited from political developments aimed at preventing Marine Le Pen’s National Rally from securing a majority in the National Assembly.
The gap between French and German 10-year bond yields narrowed to its lowest in weeks, reflecting reduced political risk in France. St James Place’s Onuekwusi added, “The debt auction will gauge investor demand with spreads at their tightest in about three weeks. The market sees value in the French market as Macron and the left wing alliance form a partnership.”
In the US, Federal Reserve minutes revealed divisions among officials regarding the duration of elevated borrowing costs, with expectations of potential rate cuts increasing for 2024. Traders await Friday’s US jobs report for further clarity on economic trends.
Commodities saw iron ore futures rise to a nearly month-long high on optimism over Chinese demand improvement.
As markets continue to navigate political uncertainties and economic data, analysts remain cautious yet optimistic about potential market movements in the coming weeks.
