European stocks saw modest gains today, as investors closely monitored the ongoing political turmoil in France and prepared for a crucial week of US economic data. Technology stocks led the charge, boosting Europe’s Stoxx 600 index, with Dutch semiconductor company ASML Holding NV seeing an uptick after maintaining its sales forecast. This came as fears over new US restrictions on Chinese access to advanced chip and AI components proved less severe than initially expected. Meanwhile, US futures remained stable after the S&P 500 notched its 54th record high of the year.
Treasuries experienced slight declines, and the dollar remained largely unchanged. Oil prices saw an upward trend ahead of Thursday’s OPEC+ supply meeting, with market sentiment buoyed by speculation that China’s leadership might approve new economic stimulus measures at a major meeting next week.
A cloud of uncertainty continues to hover over France, where a no-confidence vote in Prime Minister Michel Barnier’s government could take place as soon as Wednesday. Although French stocks had outpaced the broader European market earlier in the day, the looming political crisis weighed heavily on investor sentiment. As Barnier described it, France has reached a “moment of truth,” with the outcome of the vote having significant implications for both the political landscape and the economy.
Market participants are bracing for a flood of US economic data this week, including a highly anticipated payrolls report on Friday, which is expected to show a significant jump in November hiring. Additionally, Federal Reserve Chair Jerome Powell will participate in a moderated discussion on Wednesday, adding further focus to the week’s events.
Federal Reserve Governor Christopher Waller signaled his inclination to support a rate cut in December, although upcoming data may influence the decision. The swaps market is pricing in a 70% probability of a quarter-point rate cut this month, further fueling expectations for a potential “Goldilocks” scenario in which both economic growth and inflation remain in balance.
“This week is pivotal for the market outlook, as the final major economic data releases of 2024 will help shape expectations for the Fed’s next move,” said Tom Essaye, founder of The Sevens Report. “If the data shows signs of a soft landing, we could see further optimism surrounding a rate cut in December.”
In Asia, markets in Japan, Australia, and China rebounded, with Chinese stocks reversing earlier losses after reports that the country’s top leaders are preparing for an important economic work conference next Wednesday. This meeting will focus on setting growth targets and potential stimulus measures for 2025.
Despite the positive tone in much of Asia, sentiment remains fragile towards China, as the yuan fell to a one-year low against the US dollar amid concerns over the country’s weak economy and ongoing tensions with the US. However, the general outlook for Asian equities remained positive, as investors appeared relieved by the fact that the Biden administration’s new tech export restrictions on China were less stringent than earlier proposals.
“Asian markets are showing signs of divergence,” said Charu Chanana, Chief Investment Strategist at Saxo Markets. “While China continues to face challenges, other economies in the region are benefiting from a strong US economy and central bank easing globally.”
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