(Bloomberg) — European stocks rose as key elections took center stage and investors grew more optimistic about the viability of a Federal Reserve rate cut after U.S. economic data bolstered the case for easing.
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France’s benchmark CAC 40 index rose for a second day in a row as investors prepare for the final round of voting in early parliamentary elections this weekend. Voting is also underway in the UK general election, with the first official opinion poll due after 10pm local time.
The pan-European STOXX 600 index rose 0.5%, with banks the main gainers. U.S. stock futures were little changed, with cash markets closed for Independence Day. The S&P 500 and Nasdaq 100 hit fresh record highs in a holiday-shortened session on Wednesday.
Global stocks are on track for their longest weekly winning streak since March, lifted by a slew of weak U.S. economic data that has revived hopes for a September interest rate cut. Reports on Wednesday showed the U.S. services sector contracted at its fastest pace in four years, while the labor market showed further signs of weakness ahead of Friday’s key jobs numbers.
“With the supply management services index falling to 48.8 yesterday, the weakest since the pandemic, and job applications deteriorating, the negative data is ultimately seen as a positive for the markets,” said Justin Onwuekwuyosi, chief investment officer at St James’s Place. “September seems to be the date everyone is looking forward to now.”
In individual stock moves, Continental AG shares rose about 12% after the tiremaker reported strong growth in China. Roche Holding AG shares fell after a lung cancer drug failed to meet a key goal in a clinical trial.
Stock gains on Thursday were strongest in Asia, where the MSCI index for the region hit its highest in more than two years. Japan’s Topix index rose to a record high. The yen rose after touching its lowest since 1986 against the U.S. dollar in the previous session. Speculation persists that the Bank of Japan will only tighten policy gradually. The dollar index fell for a third straight day.
Regarding France, Morgan Stanley strategists said investors should buy the country’s stocks ahead of Sunday’s vote, because the market is likely to rebound on either of the two most likely outcomes.
French bonds have already been pushed higher by political maneuvering to prevent Marine Le Pen’s National Rally from winning an absolute majority in the National Assembly, Morgan Stanley’s Marina Zavoluk and Regan Yamanari wrote in a report, and equity investors should follow suit and increase their exposure to the country, they said.
France’s bond sale on Thursday — the second since President Emmanuel Macron called for an early vote — went smoothly, adding to signs that concerns about the risks to the country’s finances are beginning to ease. The spread between French and German 10-year yields narrowed to 68 basis points from a peak of 86 basis points last week.
“The market has clearly become more relaxed about political risk in France,” said Onwuekwueze of St James. “People seem to see value in the French market with Macron and the left-wing coalition forming a partnership that will prevent a split vote and that is positive for the second round and for bond markets as well.”
On the U.S. interest rate front, minutes from the Federal Reserve’s June policy meeting showed officials were waiting for evidence of slowing inflation and were divided on how long they should keep borrowing costs high. Friday’s U.S. jobs report will provide the next piece of data as investors assess the path of interest rates. Economists expect nonfarm payrolls to have increased by 190,000 in June — less than the previous month — with the unemployment rate holding steady at 4%.
Meanwhile, traders are tracking speculation that President Joe Biden may call off his re-election bid, and Wall Street has begun shifting money into and out of the dollar, Treasuries and other assets that could be affected by a Donald Trump victory in November.
“The elections in the U.K. and France will be a temporary concern for markets,” Adrian Zuercher, chief investment officer at UBS AG Private Banking, told Bloomberg Radio. “Trump is a different story, especially with the trade war. We’ll have to see how aggressive he is with the tariffs and it could reverberate a little longer” in markets, he added.
In commodities, oil prices fell from two-month highs as traders assessed data on a drop in U.S. crude inventories and the severity of Hurricane Beryl. Iron ore futures rose to their highest in nearly a month on optimism about improving demand from China.
Main events this week:
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UK General Election, Thursday
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US Independence Day Holiday, Thursday
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Eurozone Retail Sales, Friday
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US jobs report, Friday
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Federal Reserve Board Member John Williams Speaks Friday
Some key movements in the markets:
Stores
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The Stoxx Europe 600 index was up 0.5% as of 10:28 a.m. London time.
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S&P 500 futures were little changed.
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Nasdaq 100 futures were little changed.
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Dow Jones Industrial Average futures rose 0.2%.
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MSCI Asia Pacific Index rose 1.1%
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MSCI Emerging Markets Index rose 1%
Currencies
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The Bloomberg Dollar Index fell 0.2%.
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The euro rose 0.1% to $1.0798.
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The Japanese yen rose 0.3% to 161.26 yen per dollar.
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The offshore yuan rose 0.1% to 7.2956 against the dollar.
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The pound was little changed at $1.2753.
Cryptocurrencies
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Bitcoin fell 3.7% to $57,340.13
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Ether price fell 3.1% to $3,153.23
Bonds
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The yield on the 10-year US Treasury note was little changed at 4.36%.
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The yield on German 10-year bunds rose one basis point to 2.60%.
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The yield on the 10-year British bond rose by two basis points to 4.19%.
Goods
This story was produced with the help of Bloomberg Automation.
–With assistance from Richard Henderson and Chiranjeevi Chakraborty.
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