Weekly recap: Geopolitical tensions weigh on European market sentiment

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Stock markets on both sides of the Atlantic diverged this week. The European equities remained under pressure amid rising geopolitical tensions, while Wall Street sustained the upside momentum following robust Nvidia’s quarterly earnings result.

The escalation in the Ukraine and Russia war sparked risk-off sentiment, pushing up haven assets, including the US dollar and gold. However, the euro continued declining against the greenback to the lowest in nearly a year. Bitcoin soared closer to the $100,000 mark amid the Trump optimism. Crude oil prices rebounded sharply, up more than 4% this week, lifting global energy stocks.

Europe

Most European benchmarks were on a negative note, with the pan-European Stoxx 600 index declining 0.12%, Germany’s DAX losing 0.34%, and France’s CAC 40 slipping by 0.77% this week. The UK’s FTSE 100 regained momentum, up 1.06% in the first four days of the week, supported by energy stocks as oil prices rebounded sharply amid intensifying geopolitical tensions.

However, Thursday’s positive close in major benchmarks suggests that investors are reassessing geopolitical tensions and the economic outlook, likely paving the way for a positive weekly performance across the continent.

On Thursday, European big market cap companies’ shares saw a rebound despite negative weekly performance. ASML shares rose 2.4% as Nvidia’s robust earnings buoyed global semiconductor stocks. SAP continued to rally to a new high, up 1.86% daily and 3.86% weekly. Consumer stocks, however, remained under pressure as geopolitical jitters weighed on the economic growth-sensitive sector. LVMH shares were down 1.9%, L’oreal slipped 2.3%, and Hermers slumped 2.3% this week.

Conversely, defense stocks rallied amid rising tensions between Ukraine and Russia, with Rheinmetall’s stocks soaring for the third straight week to a fresh high. The German animation manufacturer said it targets €20 billion in sales for 2027, given increased defense spending in the EU and NATO.

Elsewhere, mining and energy stocks outperformed due to rebounding commodity prices. Shares of Rio Tinto and Anglo American were both up by between 2-3% this week, despite a flat performance of Glencore. BP and Shell were both up 1.5%, and TotalEnergies shares gained more than 1% for the week.

On the economic front, the eurozone’s headline inflation for October was confirmed at 2% year on year, aligning with the European Central Bank’s (ECB) target. However, the core inflation remained sticky at 2.7%. Attention now turns to upcoming manufacturing and service PMIs, which will likely influence market sentiment on Friday.

The UK’s inflation printed at 2.3% in October, up from 1.7% in the previous month, which may reinforce the Bank of England (BOE)’s hawkish stance for a gradual pace on rate reduction.

Wall Street

The US stock markets are on track for weekly gains, buoyed by a strong economic trajectory, robust company earnings, and optimism around Trump’s presidency. The Dow Jones Industrial Average rose 1%, the S&P 500 was up 1.3%, and the Nasdaq Composite climbed 1.6% so far this week.

At the sector level, the interest rate-sensitive sectors, such as Utilities and Real Estate, outperformed, while growth stocks, including Technology, Communication Services, and Consumer Discretionary, lagged broad markets. The energy sector also benefited from rising oil and gas prices. The sector rotations suggest that investment funds shift from tech giants to sectors that benefit from lower interest rates and a strong economy.

The artificial intelligence powerhouse, Nvidia reported robust quarterly earnings, with its revenue increasing 94% year on year. However, the company did not satisfy investors’ high expectations and provided a modest outlook for the fourth quarter, causing its share price to initially slide 2% before rebounding. The Magnificent Seven stocks were mostly lower this week, except for Tesla shares, which were up 6% following a report that the Trump Administration may relax rules around autonomous driving systems.

The US dollar index rose to above 107 for the first time since October 2023, boosted by risk-off sentiment, alongside the continued Trump rally in the dollar-dominated assets. The dollar’s strength may continue amid the Fed’s hawkish shift and rising US government bond yields.

Asia-Pacific

Major benchmarks across the Asia-Pacific region were mixed this week amid different economic dynamics. The ASX 200 hit a new high on a broad-based rally, up 1.4% weekly, bolstered by energy and utilities stocks. The trend mirrored Wall Street’s movement despite the continuous hawkish stance of the Reserve Bank of Australia (RBA).

Chinese stock markets remained under pressure due to economic concerns, with the Hang Seng Index down 0.5% and China A50 sliding 0.64% for the week. The Chinese Yuan continued weakening against the US dollar, with the pair of USD/CNH hovering around a four-month high. Japan’s Nikkei 225 was down more than 1% this week due to a resurgence in the Yen.