European Stocks Close Weak As Political Tensions, Rate Uncertainty Continue To Weigh

European stocks closed weak on Friday, with several major markets falling to multi-week or multi-month lows, amid uncertainty about interest rates, and political tensions in Europe.

Political uncertainty in France weighed after the country’s finance chief warned that a new left-wing coalition coming to power in France would lead to the country’s exit from the European Union.

Elsewhere, Nigel Farage’s Reform UK has surpassed Prime Minister Rishi Sunak’s Conservatives in a YouGov poll.

The poll for the Times newspaper puts Reform UK at 19 percent, up from 17 percent previously, and the Conservative Party unchanged at 18 percent in voting intention.

Investors also digested the latest batch of European and U.S. economic data.

The pan European Stoxx 600 fell 0.97%. The U.K.’s FTSE 100 ended down by 0.21%, Germany’s DAX and France’s CAC 40 tumbled 1.44% and 2.66%, respectively. Switzerland’s SMI closed lower by 0.42%.

Among other markets in Europe, Austria, Belgium, Finland, Greece, Iceland, Netherlands, Norway, Portugal, Spain and Sweden closed with sharp to moderate losses.

Denmark, Poland, Russia and Turkiye ended higher.

Bank stocks fell as the risk premium on French bonds hit a four-year high on concerns about the political situation in the country.

France’s finance minister has warned that the country could plunge into a debt crisis similar to one sparked in the U.K. two years ago if far-right leader Marine Le Pen were to win legislative elections slated for the end of the month.

Ratings agency S&P Global, which recently downgraded the country, said policies advocated by the party could have implications for the 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-Roye Holdings lost 2 to 4.3%.

BT Group shares rallied about 3.4%. Tesco climbed 2.6% after reporting a “robust” surge in grocery purchases by U.K. shoppers in the most recent quarter.

Sage Group, Airtel Africa, Ocado Group, Unite Group, Centrica, Fresnillo and National Grid gained 1 to 2.5%.

Crest Nicholson shares jumped 8.5%. The embattled housebuilder has rebuffed a second all-share takeover approach from its larger rival Bellway.

In the German market, Continental ended more than 6% down. Rheinmetall ended lower by about 5.2%. Commerzbank, Infineon, Puma, Siemens, Daimler Truck Holding, Deutsche Post and BASF lost 2 to 4.1%.

Henkel, Hannover Rueck, Zalando, MTU Aero Engines, SAP, BMW, RWE, Fresenius and HeidelbergCement also declined sharply.

Sartorius, Deutsche Boerse, Vonovia, E.ON, Symrise and Beiersdorf closed notably lower.

In the French market, Thales, AXA, Veolia, Teleperformance, Saint-Gobain and Stellantis lost 4 to 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 lost 2 to 4%.

In economic releases, France’s consumer price index climbed 2.3% on a yearly basis in May, faster than the 2.2% increase seen in April, final data from the statistical office INSEE showed. The rate for May was revised up from 2.2 percent.

The slight increase in inflation resulted from higher prices of energy and food. Energy prices grew at a faster pace of 5.7% due to base effect.

Britons’ short-term inflation expectations softened in May, the quarterly Inflation Attitudes Survey conducted by Ipsos on behalf of the Bank of England showed.

The one-year ahead inflation expectations fell to 2.6% from 2.8% in February. Respondents assessed the current inflation at 5.5% compared to 6.1% in the previous survey period.

Preliminary data from Eurostat showed Euro area’s non-seasonally adjusted trade balance showed a surplus of EUR 15.0 billion for April. Economists had expected a surplus of EUR 17.0 billion.

The trade surplus decreased from March’s EUR 23.7 billion due to a rise in the energy trade deficit from EUR 23.7 billion to EUR 26.2 billion. Meanwhile, the surplus for chemicals trade shrunk from EUR 23.4 billion from EUR 21.2 billion.