July 1 2024: European stocks rose on Monday, led by a strong performance in French shares following the first round of the parliamentary election, where the far-right National Rally (RN) party made historic gains, though by a smaller margin than anticipated.
France’s CAC 40 index surged by 1.6%, topping the gains among regional markets. Major French banks, including BNP Paribas, Societe Generale, and Credit Agricole, saw their shares increase between 3.8% and 4.8%.
This rise contributed to a 0.6% increase in the STOXX 600 index, breaking a streak of four consecutive sessions of losses.
In the election, the RN and its allies secured 33% of the vote, followed by a left-wing bloc with 28% and President Emmanuel Macron’s centrist group with 20%. The final outcome will depend on negotiations leading up to the July 7 run-off.
“The market is beginning to realize that a right-wing majority is less probable and less threatening. This developing narrative could continue to provide short-term relief for the markets,” commented Ben Gutteridge, multi-asset strategies portfolio manager at Invesco.
French assets had been under pressure since Macron called for a snap election last month, with the CAC 40 closing at its lowest level in over five months on Friday due to concerns about France’s fiscal discipline under the new government.
European stocks pulled back from session highs on Monday after a survey revealed that manufacturing activity in the euro zone deteriorated last month as demand dropped sharply despite price cuts by factories.
Additionally, data indicated that inflation fell in five major German states in June, hinting at a possible national inflation decline this month.
The European Central Bank (ECB) lowered interest rates from record highs earlier in June and hinted at further reductions as inflation eases but did not specify the timing of the next cut. Traders are currently pricing in a nearly 50% chance of another 25 basis point rate cut by September, according to LSEG’s rate probabilities app.
ECB President Christine Lagarde is scheduled to speak later in the day.
Among individual stocks, Atos rose 1.7% after the French technology firm reached a debt restructuring agreement with a group of banks and bondholders.
Nestle gained 0.5% following comments from its CEO in a local newspaper interview, stating that the Swiss food giant is aiming for stable growth in sales volumes starting from the second quarter.
Anglo American fell 2.9% after the mining company suspended production at its Grosvenor steelmaking coal mine in Australia due to an underground fire.
