Europe close: Political uncertainty weighs heavily on stocks

11th Jun 2024 15:05

(Sharecast News) - European stocks dropped sharply on Tuesday as ongoing political uncertainty weighed heavily on market sentiment in the aftermath of European Parliament elections which saw the advance of a number of far-right parties.

The Stoxx 600 fell 0.9% to 517.29, with stocks falling across every major region. Notable fallers included the Cac 40 in Paris which was down 1.3%, while the Ibex 35 in Madrid and FTSE MIB in Milan sank 1.6% and 1.9% respectively.

Despite ongoing weakness across the continent this week, Citigroup analysts said on Tuesday they expect the Stoxx 600 to rise to the 580 mark by the middle of 2025 on the back of positive earnings momentum and an improving macro environment as interest rates continue to fall.

Nevertheless, near-term concerns were keeping stocks in check this week, particularly in France after president Emmanuel Macron called for a surprise snap election on Sunday night in response to his party suffering a heavy defeat in the European Parliament elections that resulted in the advance of Marine Le Pen's far-right National Rally party.

Credit ratings agency Moody's said that the election is credit negative for the French economy and increases upside risks to the country's growing debt pile. "The winner of these elections is unlikely to have an absolute majority in the national assembly. Policy inertia is a credit risk given the fiscal challenges the next government will inherit," Moody's said in a report late on Monday.

Elsewhere, Wall Street stocks were in the red in early morning trade as investors readied themselves for the start of a two-day monetary policy meeting by the Federal Reserve. No change in policy is expected, but markets will be keeping a close eye on comments at the conclusion of the meeting on Wednesday evening, along with CPI inflation data from the States.

As for Tuesday, economic data was relatively thin on the ground. The only major release was data in the UK showing that the number of payrolled employees was up 0.6% year-on-year in May, while the unemployment rate ticked higher to 4.4% from 4.3% on a quarterly basis. Annual wage growth excluding bonuses was steady at 6% over the three months to April, giving the Bank of England a headache as it plots the future rate path.

Atos tanks

Shares in French IT giant Atos were sliding 18%, after it announced that its board had decided to proceed with a restructuring plan led by its top shareholder Onepoint that would seriously dilute the equity of existing shareholders. The stock has now fallen by 54% over the past month alone.

Atos, which runs the IT for France's nuclear deterrent and is the IT partner for the Paris Olympics, is labouring under almost €5bn of debt. The Onepoint bid was chosen over a rival offer from Czech billionaire Daniel Kretinsky.

Also under pressure in Paris were the banks with French lenders BNP Paribas, Société Générale and Crédit Agricole all suffering heavy losses. Commerzbank and Deutsche Bank also fell sharply in Frankfurt, while Standard Chartered, Barclays and HSBC lost ground in London.

Covestro surged 7% on reports the German chemicals maker was close to granting Abu Dhabi National Oil Company access to in-depth due diligence in expectation of an improved takeover bid.

Mining stocks were providing a drag on the FTSE 100 with Antofagasta, Glencore and Rio Tinto among the worst performers. Rio Tinto announced on Tuesday it has agreed to buy Mitsubishi Corp's 11.65% stake in Boyne Smelters for an undisclosed sum.