- Eurostoxx +0.2%
- Germany DAX +0.6%
- France CAC 40 +0.7%
- UK FTSE 100 +0.4%
- Spain IBEX -0.6%
- Italy FTSE MIB +0.8%
European stocks are enjoying a modestly positive start to the new week with most major indices opening higher as investors find some relief from the selling pressure last week. Of note, French stocks are among the better performers early on with the CAC 40 up 0.7%.
The mood music is helped by some good news from the bond market, as the France-Germany 10-year yield spread narrows to around 161 bps today – down from a high of 176 bps last week. That comes after Moody’s maintained France’s Aa3 credit rating on Friday, although it did retain a negative outlook. But considering all the worries surrounding France’s fiscal position and political uncertainty lately, I would say that is a welcome reprieve for investors.
However, I wouldn’t go as far as saying that the worst is over just yet. The yield spread remains historically elevated and the underlying fiscal concerns haven’t exactly gone away. So while the latest moves are encouraging, there is still plenty of work to do before investors can feel more comfortable with French assets again.
Meanwhile, Spain’s IBEX is the notable exception to the positive mood in falling 0.6% at the open. That comes as Spanish companies with significant exposure to Brazil are being weighed down by the outcome of Sunday’s presidential election. Lula managed to secure a surprise victory over Bolsonaro, driving a steep selloff across Latin American assets. As such, shares of Santander, Telefónica and Mapfre are coming under selling pressure amid their unique exposure to Brazil in the reaction to the result.
Looking at the broader picture this week though, it will be a busy week for European markets. The Fed, ECB and BOJ are all due to announce their latest policy decisions while big tech earnings will offer another test of investor confidence. On the latter, the main focus will be on AI spending and whether the returns can justify the massive investments being made.
For now though, European stocks are able to find a little breathing room to start the new week. But with bond market concerns still lingering and several key risk events on the calendar, I would be cautious about reading too much into the early optimism.
This article was written by Justin Low at investinglive.com.