Weekly house view | Europe turns right

The week in review

US equity indexes clocked up weekly gains in the face of mixed economic messages (weakening manufacturing activity versus still-strong jobs growth). But the S&P 500’s 1.4%[i] rise (in USD) owed much to the soaring share price of a single dominant US microchip designer, whose stock could make further gains after the announcement of a stock split. However, noticeable volatility in bond yields hurt the small-cap Russell 2000, down 2.1%[ii] (in USD). As in the US, tech stocks were at the forefront of the Stoxx Europe 600’s 1.1%[iii] gain (in euros). Although euro government bond yields fell slightly over the week, there was considerable intra-day volatility as a well-signalled ECB rate cut came with a rise in the central bank’s inflation and growth forecasts and explicit references to further policy easing were removed. Elsewhere, India’s Sensex quickly shook off the worse-than-expected performance of the outgoing government to reach a new record high, although trading patterns remained volatile. The euro lost ground to the USD and Swiss franc, while the rise in US yields hurt gold. 

Elections

President Emmanuel Macron called a snap parliamentary poll in France after far-right parties made gains in EU elections – a blow to ruling parties in the bloc’s largest countries. “This is an essential time for clarification,” he said. This decision is likely to negatively impact the European currency.

Key data

Nonfarm payrolls in the US rose 272,000 in May, above expectations and up from a revised 165,000 in April. Wage growth also crept up, to an annual 4.1% from 3.9% the previous month—but so did the unemployment rate, from 3.9% to 4.0%. US job openings fell to 8.1 million in April, their lowest level since 2021. The ISM purchasing managers’ index for manufacturing fell to 48.7 in May from 49.2 in April, but the ISM services index jumped to 53.4 from 49.4. German exports rose at a month-on-month rate of 1.6% in April, while imports increased 2.0%. Chinese exports rose at a strong annual rate of 7.6% (in US dollar terms) in May. By contrast, imports increased just 1.8%, well below forecasts.