Europe finishes in the red, caution in light of the geopolitical situation

By Diana Mandia

European stock exchanges ended sharply lower on Thursday, as investors took a cautious stance following a significant surge the day before amid hopes of a resolution to the conflict in Iran. The question of navigation in the Strait of Hormuz could take time to resolve.

In Paris, the CAC 40 lost 1.17% to 8,202.08 points. In Frankfurt, the DAX fell by 1.02%, and in London, the FTSE 100 dropped by 1.55%.

The EuroStoxx 50 index ended down by 0.90%, the FTSEurofirst 300 lost 1.12%, and the Stoxx 600 declined by 1.10%.

Sources and officials suggest that the United States and Iran are nearing a temporary agreement to end their conflict, without immediately resolving the issue of reopening the Strait of Hormuz, which would be addressed at a later stage.

Oil prices continued to fall on Thursday, somewhat calming inflation fears and giving a respite to government bonds. However, European investors remained cautious, awaiting more details as the session proved volatile.

The week saw further changes from the White House, particularly regarding an escort mission in the Strait of Hormuz, which was quickly abandoned. Many uncertainties remain about the normalization of the Middle East’s energy market, critical for Europe than the US.

“It is far from clear whether there will be a concrete step towards reopening the Strait of Hormuz, or if we are rather currently stuck in a purgatory renamed ‘ceasefire without oil’,” wrote Helima Croft, an analyst at RBC.

European markets lagged behind their global counterparts, while optimism around artificial intelligence (AI) propelled other major indices, particularly in Asia and the US, where the S&P 500 and Nasdaq set new closing records in recent days.

Investors also analyzed a slew of figures and company outlooks from the continent on Thursday, amidst uncertainty in many sectors.

Although energy sector profits skew the average – expected to see a significant 48.4% increase in the first quarter due to soaring oil prices – other companies are forecasted to show a 5.7% rise compared to the same period last year, according to LSEG I/B/E/S data.

OIL

Oil prices continued to fall on Thursday, albeit at a slower pace. The global benchmark Brent remained below $100 a barrel amid renewed hopes for a peace deal between the US and Iran.

Brent lost 2.75% to $98.49 per barrel, while West Texas Intermediate (WTI) crude dropped by 2.99% to $92.24.

STOCKS

In Paris, Bouygues was the worst performer on the CAC 40, losing 3.66% after disappointing quarterly results. Engie, which reported declining results on Thursday, fell by 2.58%.

Trigano, with a revenue increase of 6.2% in the first half of the year, gained 1.96%. Luxury sector stocks rose by 1.25%, supported by optimism surrounding the Middle East, with LVMH, Hermès, and Kering among the top performers in the CAC 40 on Thursday.

Elsewhere in Europe, Solvay dropped over 7% after reporting an organic Ebitda decline for the first quarter, citing unfavorable price and volume trends, adverse currency effects, and transformation expenses.

In Milan, Campari plunged by 14% as its first-quarter revenue fell short of analyst expectations.

The defense sector suffered a 2.69% decline, partly due to fiscal and budgetary pressures in Germany and Rheinmetall’s sharp drop of 6.9%.

AT WALL STREET

US stock indices traded mixed on Thursday, with the Dow Jones down 0.16%, while the S&P 500 and Nasdaq Composite rose by 0.12% and 0.51%, respectively.

US-listed Arm Holdings lost 10%, as concerns about its ability to source for its new AI chip overshadowed a solid profit forecast.

KEY INDICATORS OF THE DAY

Retail sales in the eurozone fell by 0.1% in March, less than expected, according to data released on Thursday by Eurostat, the EU’s statistics office.

In the US, the number of initial jobless claims last week increased less than anticipated, amid low layoff numbers.

Investors are also gearing up for Friday’s US employment figures, which remain closely watched to assess the American economy’s health.

EXCHANGE RATES

The dollar weakened by 0.10% against a basket of reference currencies for the second consecutive day, as hopes for de-escalation in the Middle East supported oil-exposed currencies.

The euro gained 0.15% to $1.1765.

BONDS

Eurozone sovereign bonds, which saw their largest increase in a month on Wednesday on hopes of a US-Iran agreement, had a more mixed performance on Thursday.

The yield on the German ten-year Bund ended nearly unchanged at 0.29971%, while the two-year bond yield rose by 1.3 basis points to 0.25734%.

In the UK, operators awaited the results of local elections, which could impact the future of Labour Prime Minister Keir Starmer and raise budgetary concerns. The ten-year Gilt yield dropped by around 1 basis point to 4.931%.

US Treasury yields retreated earlier but were relatively stable at the close of European markets. The ten-year Treasury yield stood at 4.3600%, with the two-year yield at 3.8780%, both slightly higher.

Cleveland Fed President Beth Hammack stated in an interview on Thursday that she expected the US central bank to keep interest rates unchanged for a long time, given the high uncertainty environment.

TO BE CONTINUED ON MAY 8:

(Information may be slightly delayed)

(Written by Diana Mandia, Edited by Benoit Van Overstraeten)