Stocks in Europe failed to hold early gains on Monday, closing lower, as investors assessed the implications of an expected political gridlock in France.

The FTSE 100 index ended down 10.44 points, 0.1%, at 8,193.49. The FTSE 250 rose 11.67 points, 0.1%, at 20,798.32, and the AIM All-Share edged up 0.77 of a point, 0.1%, to 775.16.

The Cboe UK 100 ended up 0.1% at 816.60, the Cboe UK 250 closed down 0.1% at 18,094.48, and the Cboe Small Companies closed up 0.5% at 17,117.53.

In European equities on Monday, the CAC 40 in Paris ended down 0.6%, while in Frankfurt, the DAX 40 closed marginally lower.

Over in France, President Emmanuel Macron has refused the resignation of the country’s prime minister, asking him to remain temporarily as the head of the government after chaotic election results left the government in limbo.

Voters split the legislature on the left, centre and far right, leaving no faction even close to the majority needed to form a government.

‘The second round of the French snap elections resulted in a hung parliament, as we expected. Even though the Nouveau Front Populaire, an alliance of left-wing parties recorded a surprisingly strong performance and finished in first place, we think France is still set for policy paralysis, as an Assembly split in 3 large blocs will be unable to underpin a stable government,’ Capital Economics analyst Leo Barincou commented.

New UK Chancellor Rachel Reeves has said the date for the government’s first budget will be announced before the Commons summer recess, and spoke of ‘short-term political pain to fix Britain’s foundations’.

In her first major speech as chancellor, Reeves said she would assess the ‘spending inheritance’ left behind by the Conservatives.

Reeves confirmed a national planning policy framework will be reformed, including restoring mandatory housebuilding targets for local authorities as part of the drive to build 1.5 million homes over five years.

The ‘absurd’ ban on new onshore wind farms in England has been scrapped and energy projects will be given priority in the planning system.

Housebuilders closed higher on Monday. Persimmon rose 0.5%, while Taylor Wimpey added 0.9%.

The pound was quoted at $1.2829 at the time of the London equities close on Monday, higher compared to $1.2806 on Friday. The euro stood at $1.0833, up against $1.0828. Against the yen, the dollar was trading at JP¥160.71, down compared to JP¥161.70.

XTB analyst Kathleen Brooks commented: ‘The new chancellor’s tone was both bullish and pragmatic at the same time. She reiterated her plan to work with business and private investors to build new infrastructure in the UK, and tomorrow the prime minister is set to announce the new GB energy fund. Regardless of whether you agree with the new government, you can’t accuse them of resting on their laurels. These first steps have been broadly welcomed by the financial markets. GBP/USD has climbed to its highest level since March 2024, and has broken out of its recent range. The next target for this pair is $1.30.’

In New York, the Dow Jones Industrial Average and the S&P 500 were up 0.1%, and the Nasdaq Composite was 0.3% higher.

Interest rate cut hopes were supporting US equities, after Friday’s tamer US jobs report. The US economy added 206,000 jobs in June, easing from 272,000 in May, but outperforming the FXStreet-cited consensus of 190,000.

There is an inflation reading from the world’s largest economy on Thursday, after US Federal Reserve Chair Jerome Powell speaks on Tuesday and Wednesday.

ING analyst Francesco Pesole commented: ‘We stick to our view that if any surprising message emerges from Powell’s communication, it will be on the dovish side after an excessively hawkish revision in the June dot plot projections. All in all, we expect the macro story to keep pointing to a dollar decline, but political developments in the eurozone and the US mean that only a few currencies can benefit from it, and that may not include the euro.’

Political developments in the US remained in focus.

US President Joe Biden on Monday called for Democratic lawmakers to show full support for his reelection campaign after days of speculation around whether he should pull out due to his advanced age.

‘I am firmly committed to staying in the race,’ Biden wrote in a letter to his fellow Democrats. ‘It is time to come together, move forward as a unified party and defeat Donald Trump.’

In London, Hiscox added 13%. An article from Insurance Insider reported that Hiscox has attracted takeover interest and could be set for a sale.

Insurance Insider noted that sources have said that Sompo and Generali are circling.

Analysts at Berenberg commented: ‘The bid rumours do not really come as a surprise, as the depressed post-Covid-19 valuations of specialist London-based (re)insurers – including peers Beazley, Lancashire and Conduit Re – always raised questions as to whether they would be potential targets.’

Ferrexpo added 14%. It reported its best period of output since Russia’s invasion of Ukraine, with shipments also boosted by access to the Black Sea maritime corridor.

The producer of iron ore pellets in Ukraine said total commercial production in the first half of 2024 totalled 3.7 million tonnes, rising 83% from 2.0 million in the second half of 2023. Pellet production totalled 3.3 million tonnes, a climb of 76% from the 1.9 million tonnes achieved in the second half of 2023,

Interim Executive Chair Lucio Genovese said: ‘This is our best performance since the start of the full-scale invasion of Ukraine in February 2022. During the quarter access to the Black Sea maritime corridor enabled us to continue shipments from Ukrainian ports.

‘Since the corridor was opened in late 2023, it is estimated that over 800 ships have safely passed through, including 90 with ferrous commodities. The increased number of owners prepared to charter vessels to Ukrainian ports, resulted in improved availability, however freight rates and insurance risk premiums remain high, not only for the passage to Ukraine, but also through the Red Sea.’

Brent oil was quoted at $86.16 a barrel late in London on Monday, down from $87.85 late Friday. Gold was quoted at $2,370.69 an ounce, lower against $2,385.01.

Powell’s congressional testimony begins at 1500 BST, headlining an otherwise quiet day on the economic calendar on Tuesday. There is an Irish industrial production reading at 1100 BST.

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Issue Date: 08 Jul 2024