European equity markets saw a modest rise on Tuesday, with the pan-European STOXX 600 climbing 0.7%, bolstered by a 1.37% gain in technology stocks and a 1.25% rise in the basic resources sector.
However, political instability in France continued to weigh on investor sentiment.
France’s CAC 40 index, while up 0.26% early in the session, underperformed regional peers as Prime Minister Michel Barnier’s government faces a likely collapse.
Both left- and right-wing parties have submitted no-confidence motions following his controversial use of constitutional powers to pass a contested budget bill.
France’s political uncertainty weighs on investor sentiment
The no-confidence vote against Barnier is expected as early as Wednesday.
French stock and bond markets are facing mounting pressure as the euro zone’s second-largest economy struggles with a growing deficit.
Prime Minister Michel Barnier’s government is encountering intense opposition to its proposed budget.
Despite these challenges, shares of Worldline stood out, rising further after the French payments group reportedly attracted private equity interest.
Germany’s DAX 40 shines
Germany faces political uncertainty.
The far-right AfD party has intensified calls for Germany to exit the European Union, the euro, and the Paris Climate Agreement, as early elections loom in February 2025.
German Chancellor Olaf Scholz is set to face a confidence vote on December 11, with the Bundestag voting on December 16.
Even so, the DAX 40 was up by 0.34%.
Germany’s benchmark index has soared to record highs, defying weak business sentiment and rising recession fears.
This stark contrast between lackluster economic data and surging stock performance highlights a growing interest from contrarian investors.
Many see opportunity in the significant underperformance and pervasive pessimism surrounding European markets.
In response, Bank of America strategists have upgraded European equities to a tactical overweight, arguing that the region’s economic struggles may already be fully reflected in current valuations.
Mercedes-Benz dropped 2% after Barclays cut its rating on the German carmaker’s shares to “underweight” from “equal-weight”.
FTSE 100 and FTSE 250 advance on corporate gains
The UK’s FTSE 100 outperformed with a 50.76-point gain, taking the index to 8,363.65, supported by strong performances from BP (up by 1.66%), Glencore (up by 2.27%), and HSBC (1.34%).
British Gas owner Centrica added 3.10p, and easyJet climbed 21.40p to 568.20.
The FTSE 250 index saw sharper moves, with SSP Group rising 10% following robust results.
Greencore and Victrex also posted significant gains, rising 8% and 7.6%, respectively.
Among All-Share stocks, On The Beach surged 12% after strong annual results, while pub operator Marston’s added 5.7%.
Swiss inflation cools
Switzerland’s financial markets were subdued as the Swiss Market Index traded flat.
New inflation data revealed a 0.7% year-on-year increase in November, slightly below the expected 0.8%.
Consumer prices fell 0.1% from October, driven by lower costs for hotels, international holidays, and new cars.
However, housing rental costs and air transport prices showed an uptick.
The lower-than-expected inflation could compel the Swiss National Bank to consider further interest rate cuts in its upcoming policy meeting next week.
Euro struggles amid political uncertainty
The euro traded near recent lows, hovering at 1.0522 against the US dollar.
Analysts attributed the weakness to escalating political uncertainties in Europe, particularly in France and Germany.
“Risks are skewed to the downside for the euro,” noted Frances Cheung and Christopher Wong, FX strategists at OCBC.
They pointed to critical support levels at 1.0450 and resistance at 1.0610, suggesting further declines could follow if the political crises deepen.
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