On Friday, European stocks closed on a weak note, with several major indices reaching multi-week or multi-month lows amidst ongoing concerns about interest rates and political tensions across Europe.
In France, political instability contributed to market anxiety after the nation's finance chief cautioned that a new left-wing coalition coming to power could trigger France's exit from the European Union.
In the UK, Nigel Farage's Reform UK has overtaken Prime Minister Rishi Sunak's Conservatives in a recent YouGov poll. The Times-published poll lists Reform UK at 19%, up from 17%, whereas the Conservative Party remains steady at 18% in voting intentions.
Market participants also analyzed the latest economic data from both Europe and the United States.
The pan-European STOXX 600 index fell by 0.97%. The UK's FTSE 100 slipped by 0.21%, while Germany's DAX and France's CAC 40 plummeted by 1.44% and 2.66%, respectively. Switzerland's SMI ended the day down by 0.42%.
Other European markets such as Austria, Belgium, Finland, Greece, Iceland, Netherlands, Norway, Portugal, Spain, and Sweden closed with sharp to moderate losses. Conversely, Denmark, Poland, Russia, and Turkey saw gains.
Banking stocks were hit as the risk premium on French bonds climbed to a four-year high due to concerns about the country's political climate. French Finance Minister warned that a debt crisis similar to the one that impacted the UK two years ago could ensue if far-right leader Marine Le Pen won the forthcoming legislative elections.
Ratings agency S&P Global, which recently downgraded France, indicated that the party's policies could adversely affect the nation’s credit rating.
In the UK market, Burberry Group, Melrose Industries, BAE Systems, Rentokil Initial, Intertek Group, Kingfisher, Entain, Barratt Developments, Weir Group, Spirax Group, and Rolls-Royce Holdings experienced losses between 2% and 4.3%.
Shares of BT Group surged about 3.4%. Tesco climbed 2.6% following a robust increase in grocery purchases by UK shoppers in the latest quarter. Gains were also seen for Sage Group, Airtel Africa, Ocado Group, Unite Group, Centrica, Fresnillo, and National Grid, with increases ranging from 1% to 2.5%.
Crest Nicholson shares jumped 8.5% as the struggling housebuilder rejected a second all-share takeover bid from its larger rival, Bellway.
In Germany, Continental shares declined by over 6%. Rheinmetall was down by approximately 5.2%. Commerzbank, Infineon, Puma, Siemens, Daimler Truck Holding, Deutsche Post, and BASF registered losses between 2% and 4.1%. Henkel, Hannover Rueck, Zalando, MTU Aero Engines, SAP, BMW, RWE, Fresenius, and HeidelbergCement also faced significant declines. Shares of Sartorius, Deutsche Boerse, Vonovia, E.ON, Symrise, and Beiersdorf closed noticeably lower.
In the French market, Thales, AXA, Veolia, Teleperformance, Saint-Gobain, and Stellantis dropped between 4% and 6.5%. Kering, Credit Agricole, Schneider Electric, Legrand, Renault, Societe Generale, STMicroelectronics, Accor, Michelin, Publicis Groupe, Safran, BNP Paribas, Hermes International, LVMH, Edenred, Vinci, and Essilor suffered losses ranging from 2% to 4%.
Regarding economic data, France's consumer price index rose by 2.3% year-over-year in May, up from the 2.2% increase in April, according to final data from the statistical office INSEE. The rate for May was revised upwards from 2.2%.
The minor inflation increase was attributed to higher energy and food prices, with energy costs rising by 5.7% due to base effects.
In the UK, short-term inflation expectations softened in May, according to the quarterly Inflation Attitudes Survey conducted by Ipsos for the Bank of England. One-year ahead inflation expectations dropped to 2.6% from 2.8% in February. Respondents estimated the current inflation rate at 5.5%, down from 6.1% during the previous survey period.
Preliminary data from Eurostat revealed that the Euro area’s non-seasonally adjusted trade balance showed a surplus of EUR 15.0 billion for April, falling short of economists' expectations of a EUR 17.0 billion surplus. The trade surplus declined from March's EUR 23.7 billion due to an increased energy trade deficit, which rose from EUR 23.7 billion to EUR 26.2 billion. Meanwhile, the surplus in the chemicals trade shrank from EUR 23.4 billion to EUR 21.2 billion.
