Market News

(Bloomberg) -- European stocks snapped a four-day losing streak and the euro strengthened as investors took French election results as a sign that the nation may be headed for political gridlock.

Traders interpreted the first round of voting as an indication that Marine Le Pen’s far-right party faces a tougher-than-expected road to an absolute majority, meaning there’s a smaller chance of policymakers being able to enact extreme policies that would rattle financial markets. The 10-year spread on French-German debt narrowed to a two-week low.

“Markets are quite content there’s no apparent absolute majority,” said Claudia Panseri, chief investment officer for France at UBS Wealth Management. “The most extreme scenarios for the spread have been excluded.”

France’s CAC 40 Index jumped as much as 2.8% before retracing some gains. Banking stocks led the advance in Europe’s Stoxx 600 Index, as French lenders Societe Generale SA, BNP Paribas SA and Credit Agricole SA all surged by more than 5%. The euro climbed to its strongest level since mid June. 

Beyond Europe, US equity futures were little changed and Asian stocks posted small gains. Spirit AeroSystems Holdings Inc. rose 6.3% in US premarket trading after Boeing Co. agreed to buy back the supplier in an all-stock deal that values it at $4.7 billion.

France’s second round of voting will be held on July 7. The French political world is now embarking on a period of horse-trading. In constituencies where three people qualified for the runoffs, the third-placed candidate can withdraw to boost the chances of another mainstream party defeating the far right. 

“It’s hard to argue that you’ve got a good outcome,” Sebastian Raedler, head of European equity strategy at Bank of America, said on Bloomberg Television. “Maybe you block a majority by the hard right. But in the best-case scenario, you get a hung parliament. That effectively means very little decision making, no ability to deal with a very wide budget deficit, and also the European integration story effectively put on hold.”

Meanwhile, as US investors prepare for the second-quarter reporting season, Goldman Sachs Group Inc. strategists said Corporate America faces the highest earnings bar in almost three years. 

Single-stock analysts predict profits at S&P 500 firms rose 9% on average in the April-June period — the biggest year-over-year increase since the fourth quarter of 2021, Goldman strategists led by David Kostin wrote in a note.

“The magnitude of earnings-per-share beats is likely to diminish as consensus forecasts set a higher bar than in previous quarters,” Kostin said. “We expect the outperformance ‘reward’ for stocks beating estimates will be smaller than average again this quarter.”

In emerging markets, South African assets rallied after President Cyril Ramaphosa announced a new cabinet that includes members of the opposition Democratic Alliance, considered business-friendly by investors.

In commodities, oil rose as traders assessed economic outlook and geopolitical risks in Europe and the Middle East. Iron ore rose amid tentative signs of recovery in China’s steel-intensive property market, and speculation that Beijing could do more to support the sector.