Europe remains benefiting from a technical bounce in the absence of Wall Street

02, Dec - NEWS

European stock markets were in the green mid-session on 28 November, benefiting from a technical rebound, especially in the new technology sector, after two sessions of declines amid trade war fears, while Wall Street is closed for Thanksgiving. On 29 November, US markets will reopen in a shortened session after closing in the negative on concerns that the US Federal Reserve (Fed) will take a more cautious approach to rate cuts in light of the latest US inflation data. 

In trading, the Paris bourse's CAC 40 index, which the previous day hit its lowest level since August, rose 0.42% to 7,173.3 points thanks to a slight calming in the bond market. The yield spread between French and German debt, which had earlier risen to its highest level since 2012, narrowed to 83 basis points. French Economy Minister Antoine Armand said the government, threatened by a vote of no confidence, was ready to take steps to introduce taxation in the electricity sector.

European indices and economic optimism

In Frankfurt, the Dax index rose 0.69% and in London, the FTSE added 0.07%. The pan-European FTSEurofirst 300 index rose 0.41%, the EuroStoxx 50, which reflects the dynamics of the eurozone, rose 0.58% and the Stoxx 600 added 0.33%. The technology sector attracted particular attention with a 1.46% rise, its best performance in a fortnight. This rise was due to the Bloomberg report that the US administration may ease restrictions on exports of microchips to China, which was an unexpected positive signal for the sector.

On the back of this optimism, data from the European Commission showed an improvement in eurozone economic sentiment in November, as well as an acceleration in business credit growth in October. However, markets remain exposed to risks and their resilience may be questioned. In the near term, the key driver will be the release of German inflation data. Preliminary information from the German states already points to a possible acceleration in inflation in November, which could influence the current market trend.

Positive signals from individual sectors support the market

Shares in Rémy Cointreau rose by 4.26% after the company's CEO announced the end of the downturn in the US market and the beginning of a recovery phase. The technology sector also strengthened markedly on the back of this optimism, with semiconductor manufacturers ASM International, BE Semiconductor and ASML up 2.57% and 4.06% respectively. The rise was caused by the news from Bloomberg, according to which the administration of President Joe Biden intends to relax strict restrictions on export of microchips to China.

Among other notable developments, insurance company Direct Line Insurance soared 42% after rejecting a takeover offer from rival Aviva (-3.16%). Direct Line's management felt that the 3.28bn pounds offered significantly undervalued the company. In turn, Uniper shares rose 5.93% in reaction to an increase in its full-year financial results forecast. 

However, not all companies were able to show positive momentum. Grifols shares fell by 4.47%, continuing the previous day's decline. The reason was the decision of the Canadian fund Brookfield to abandon the deal to acquire the Spanish company, which increased the pressure on its quotations.

Lull in bonds amid political stability

The yield on ten-year German bunds remained at 2.158%, while the yield on their French counterparts with the same maturity fell by 2.8 basis points to 2.991%. This points to some calm in the political arena. ‘We don't expect Marine Le Pen to implement threats to overthrow the government anytime soon, but the situation remains a reminder of the instability in the country,’ said Michel Tukker, European rates strategist at ING.

The dollar strengthened, helped by limited market activity due to the US Thanksgiving holiday. This came after the dollar hit a two-week low against a basket of key currencies the previous day. The index, which reflects the dynamics of the American currency, increased by 0.15% and reached 106.27 points. Amid the growth of the dollar, the euro weakened by 0.16%, falling to 1.0547 dollars, while the pound sterling fell by 0.11% to 1.2664 dollars. Such dynamics emphasises the dollar's clear advantage in the current environment of low trading activity.