European Stocks Advance With Elections in Focus: Markets Wrap

(Bloomberg) — European stocks rose as key elections held center stage and as traders assessed the case for Federal Reserve interest-rate cuts following US economic data that supported the case for easing.

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France’s CAC40 benchmark index advanced for a second day in the buildup to this weekend’s final round of voting in snap parliamentary elections. Voting is underway in the UK’s general election, with the first official exit poll expected soon after 10 p.m. local time.

Europe’s regional Stoxx 600 index climbed 0.5%, with autos and banking stocks the leading gainers. US equity futures contracts were little changed with cash markets shut for Independence Day. The S&P 500 and the Nasdaq 100 index set fresh record highs in Wednesday’s holiday-shortened session.

Global stocks are on track for their longest stretch of weekly gains since March, driven by a series of soft economic data in the US, which has revived the possibility of rate cuts in September. On Wednesday, reports showed the American services sector contracted at the fastest pace in four years, and the labor market saw further signs of softening before Friday’s key jobs figures.

“With the ISM services yesterday falling to 48.8, the weakest since the pandemic and job claims deteriorating, ultimately the negative data is being seen as positive for markets,” said Justin Onuekwusi, chief investment officer at St James Place. “It feels like September is the date everyone is now looking at.”

In individual stock moves, Continental AG rallied as much as 12% after the tiremaker flagged strong growth in China. Roche Holding AG dropped after a lung-cancer drug failed to meet the main goal in a clinical trial.

Thursday’s gains for stocks were stronger in Asia, where an MSCI gauge for the region hit its highest in over two years. Japan’s Topix climbed to a record high. The yen strengthened after once again touching its lowest level since 1986 against the greenback in the previous session. Speculation persists that the Bank of Japan will tighten policy only gradually. A gauge of the dollar weakened for a third day.

On France, Morgan Stanley strategists said investors should buy the country’s stocks before Sunday’s vote, because the market is likely to rebound in either of the two most probable outcomes.

French bonds already have been lifted by the political maneuvering that seeks to block Marine Le Pen’s National Rally from winning an absolute majority in the National Assembly, Morgan Stanley’s Marina Zavolock and Regiane Yamanari wrote in a report. Stock investors should follow their lead and add exposure to the country, they said.

The gap between French and German 10-year bond yields fell below 70 basis points on Wednesday to the lowest since the middle of last month. France today holds its second bond auction since President Emmanuel Macron called the snap vote.

“The market is clearly more relaxed about the political risk in France,” Onuekwusi at St James said. “The debt auction will be a barometer of investor demand, given spreads are at the tightest since about three weeks. It seems like people are seeing value in the French market as Macron and the left wing alliance form a partnership which should prevent the vote being split and that’s positive in terms of the second round and for bond markets too.”

Back on the US rates front, minutes from the Fed’s June policy meeting showed officials were awaiting evidence that inflation is cooling and were divided on how long to keep borrowing costs elevated. Swap traders projected almost two rate cuts in 2024, with the first in November — though bets on a September reduction increased.

Friday’s US jobs report will provide the next piece of data as investors assess the path for rates. Economists anticipate a 190,000 gain in June non-farm payrolls — less than the previous month — with the unemployment rate holding at 4%.

Traders are tracking speculation that President Joe Biden could scrap his run for re-election. Wall Street has started shifting money to and from the dollar, Treasuries and other assets that would be affected by a victory for Donald Trump in November.

“The UK and French elections will be more of a temporary concern for the markets,” Adrian Zuercher, chief investment officer at UBS AG Private Banking told Bloomberg Radio. “Trump is a different story, particularly, the trade war situation. We will have to see how aggressive he will be on tariffs and that might resonate a little bit longer” with markets, he said.

In commodities, iron ore futures climbed to the highest level in nearly a month on optimism for improvement in demand from China.

Key events this week:

UK general election, Thursday
US Independence Day holiday, Thursday
Eurozone retail sales, Friday
US jobs report, Friday
Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 rose 0.5% as of 9:22 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average rose 0.2%
The MSCI Asia Pacific Index rose 1.1%
The MSCI Emerging Markets Index rose 1%

Currencies

The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.1% to $1.0799
The Japanese yen rose 0.3% to 161.27 per dollar
The offshore yuan was little changed at 7.2961 per dollar
The British pound rose 0.1% to $1.2760

Cryptocurrencies

Bitcoin fell 2.3% to $58,154.39
Ether fell 2.1% to $3,187.29

Bonds

The yield on 10-year Treasuries was little changed at 4.36%
Germany’s 10-year yield was little changed at 2.59%
Britain’s 10-year yield was little changed at 4.18%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson and Chiranjivi Chakraborty.