Strong concerns about France are driving the markets in Europe and are also having a negative impact on global market sentiment, which is also increasing demand for safe havens such as bonds, gold and the USD. European equities are heading for their worst week since at least October, and the French CAC 40 index has even lost all its gains for the year.
We are also seeing the effects of heavy profit taking in Europe to a lesser extent in New York, where Wall Street is opening weaker after hitting a new record high every day this week (S&P 500 & Nasdaq 100).
Markets are increasingly concerned after French President Emmanuel Macron announced early parliamentary elections following his party's defeat in the European Parliament elections. Investors fear that a victory for Marine Le Pen's far-right National Rally party, which leads by a wide margin in the polls, will lead to looser fiscal policy. Any outcome seems unfavorable as, at the other end of the political spectrum, a coalition of the French left has put forward a manifesto calling into question most of President Emmanuel Macron's economic reforms.
The uncertainty has seen the premium France pays on its debt compared to Germany skyrocket this week to its highest level since 2011, while the yield on two-year German government bonds – the safest European sovereign bonds – is set for its biggest fall since December due to increased demand.
The high volatility and panic selling in the CAC, one of Europe's leading indices, and profit-taking in equities elsewhere in Europe could continue until the French elections are concluded in July.
However, much of what we are seeing now is panic selling due to uncertainty – recent economic data has shown that most data points to an improving economy in France and Europe.
In the US, the S&P 500 (and Nasdaq 100) remain near record highs, but are falling in line with the flight to safety. Adobe shares rose by the most in four years after the company forecast strong sales for its creative products.
Asian markets closed mixed today. The Bank of Japan kept investors waiting until its July meeting to learn how it will reduce bond purchases after leaving interest rates unchanged (as expected).
I expect Wall Street to continue to benefit from recent positive economic reports – including this week's very Fed-friendly inflation reports. However, following the hawkish tone from the Fed on Thursday and the dotplot showing that FOMC members only see one rate cut in 2024, rather than three as the previous dotplot showed, concerns remain that the Fed could keep financial conditions dovish for longer.
I expect profit taking and stronger demand for safe havens in the second half of US trading. However, the sharp losses in Europe today went a long way – there is unlikely to be any additional headwind from Europe. However, the situation in Europe remains tense and volatile.
👁 ROB'S MARKET OVERVIEW:
June 14, 2024
🌐/🇺🇸 Global Markets ↘️/↕️
Cyclical / Luxury Stocks ↘️/↗️/↘️
Tech/Growth Stocks ↘️/↗️/↘️
Financial Stocks ↘️/↕️
Defensive Stocks ➡️
Energy Stocks ➡️
Materials Stocks ↗️/➡️
💱 Forex
CHF ↗️ (benefiting from safe haven demand and outlook of rate cuts for ECB, Fed, BoE, BoC etc)
USD ↗️/➡️ (losing some of earlier gains due to further falling yields)
JPY ↗️/➡️ (benefiting from safe haven demand; slight headwinds from still very loose BoJ policy)
CAD ➡️
AUD ↘️/➡️
EUR ↘️/↕️ (sharply oversold but remaining under pressure due to uncertainty in Europe)
GBP ↘️ (headwinds from increased safe haven demand, uncertainty in Europe)
⚒ Commodity Markets ↕️
Oil prices ↗️/➡️
Natural Gas prices ↘️/↕️
Metal prices ↗️/➡️
Gold ↗️/↕️ (benefiting from lower yields / increased safe haven demand)
⚡️Cryptos ↕️/↗️ (benefiting from lower yields, remaining in bullish momentum)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
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