Weekly Recap: European stocks underperform global peers

Global stock markets are set to end the week on a strong note amid the US election and China’s highly anticipated additional stimulus measures. However, European benchmarks underperformed global peers due to economic concerns and political instability.

Despite a broad rebound in European stock markets on Thursday, major benchmarks remained under pressure following Trump’s victory in the US election on a weekly basis.

The pan-European Stoxx 600 index was flat for the week, contrasting with a 4.3% surge in the S&P 500 and a 5.6% rally in the China A50. This underperformance underscored the European economy’s fragility in response to external factors. Trump’s pledged tariffs have certainly spooked European markets, with Germany’s political uncertainties compounding the downside pressure.

Europe

The week has been overshadowed by the US election, with European markets largely reacting to political events.

Economic data did provide some encouraging insights into the eurozone’s economic trajectory. The final services PMIs and manufacturing PMIs for October were both revised upwards, though business activity in manufacturing remained contracted.

Notably, Germany saw improvements in both sectors and, more encouragingly, its factory orders rose by 4.2% month-on-month in September, the highest increase since December 2023. However, this improvement could be undermined if Trump imposes additional tariffs on European goods.

European stock benchmarks were mixed over the week as of Thursday’s close. The Euro Stoxx 600 fell 0.2%, Germany’s DAX rose by 0.56%, France’s CAC 40 edged up 0.22%, while the British FTSE 100 slipped by 0.45%.

On the earnings front, shares of Novo Nordisk slumped to a 10-month low following disappointing guidance, despite strong sales growth for its weight-loss drug, Wegovy.

Europe’s largest company saw its shares fall 5% this week, marking a 43% decline from its all-time high in January. Siemens Healthineers’ annual revenue and profit growth outlook for the fiscal year 2024 met estimates, sending its shares surging 9% this week.

Meanwhile, the euro plunged against the US dollar, as well as weakening against other G10 currencies, suggesting that the European Central Bank (ECB) may need to accelerate its rate cuts to support the region’s economic growth. Trump’s tariffs could potentially exacerbate economic challenges for the eurozone, as well as impact China, the EU’s primary trade partner.

In the UK, the Bank of England cut interest rates by 0.25% as expected, marking the second reduction this year. However, the decision did little to lift British stock markets, as Governor Andrew Bailey noted the bank’s need to maintain a gradual approach to policy easing. Economists remarked that UK Finance Minister Rachel Reeve’s announcement of £40bn in tax hikes, along with potential Trump tariffs, could place upward pressure on inflation.

Wall Street

US stock markets were buoyed by the US election and the Fed’s rate cut this week, with the S&P 500 posting the best election day rally ever and the best Fed day surge in 2024. The index has risen 4.3% over the week so far, achieving a record high for the 49th session this year. The Dow Jones Industrial Average rallied 4%, and the Nasdaq jumped 5.3%.

Wall Street’s performance reflects investors’ continued optimism amidst a resilient economy, pro-growth fiscal policies, and accommodating monetary policy.

Meanwhile, sector rotation highlights changes in fund allocations based on the economic cycle. Growth sectors benefiting from tax cuts and risk-on sentiment, including Technology, Consumer Discretionary, and Communication Services, were among the top performers, while interest rate-sensitive sectors, such as Real Estate, Consumer Staples, and Utilities, were lower due to expectations that the Fed may slow down rate cuts.

Trump’s proposed policies, such as tax cuts, deregulation, and higher import tariffs, along with a potential Republican sweep in Congress, point towards higher inflation and a strengthening US dollar.

Asia-Pacific

Stock markets across the Asia-Pacific region also experienced strong gains over the week, with a broad-based rally. Chinese mainland stock markets were particularly robust, with the SSE Composite Index surging 6.3% this week, amid optimism over additional stimulus measures expected to be announced at the parliamentary meeting on Friday. Chinese economic data was also unexpectedly strong, with exports rising by 12.7% in October, marking the highest increase in 19 months.

Other regional markets also rose on a weekly basis, buoyed by optimism surrounding China, with the ASX 200 up 2.3%, the Nikkei 225 climbing 3.8%, and the Kospi gaining 1.26%.