Stability in sight in Europe with geopolitics and before the PMIs

by Claude Chendjou

The main European stock markets are expected to be close to balance on Thursday, with American President Donald Trump having once again tried to reassure the financial markets about the evolution of the conflict in Iran.

The session will, however, be marked by numerous macroeconomic indicators, including PMIs, which could provide an overview of inflationary pressures and economic developments, in a context of a recent surge in bond yields.

According to the first available indications, the Parisian CAC 40 should open practically stable (-0.01%). ​The Dax in Frankfurt could fall 0.13%, while the FTSE 100 in London is expected to drop 0.14%. The EuroStoxx 50 index is expected to fall by 0.05% and the Stoxx 600 down by 0.18%.

US President Donald Trump said on Wednesday that the United States was prepared to carry out new attacks on Iran if Tehran did not agree to a peace deal, but suggested that Washington could wait a few days to “get the right answers”.

For Westpac analysts, this helped reassure investors, allowing the S&P 500 and Nasdaq Composite indices to rebound sharply after three sessions of decline, while “oil prices also fell.

On the economic front, investors will learn from 07:15 GMT the preliminary PMI indices in the manufacturing and services sectors for the month of May in Europe. Figures published for the month of April showed a contraction in services activity in the euro zone, while in Britain, this sector recorded its biggest increase in costs since the end of 2022.

Regarding inflation in the euro zone, it accelerated in April, as initially forecast, to 3% over one year, thus being well above the 2% target of the European Central Bank (ECB).

This data is being monitored as the benchmark 10-year US Treasury yield this week reached its highest level in 16 months, at 4.687%, while that of 30-year bonds climbed to 5.198%, levels unseen since 2007. In Europe, the yield on the ten-year German Bund reached its highest since 2011 on Tuesday, at 3.19%. Their surge is linked to fears of a surge in inflation, fueled by rising oil prices with the war in the Middle East, which could push central banks to tighten their monetary policy.

The Fed’s minutes, released Wednesday, showed that a growing number of officials at the institution are in favor of raising rates, a sign that new President Kevin Warsh will inherit a team of increasingly hawkish central bankers.

In terms of corporate results, Nvidia, a barometer of artificial intelligence (AI), a theme at the origin of the recent market rally, published on Wednesday a quarterly turnover higher than Wall Street forecasts and unveiled a buyback program of shares of 80 to billion dollars. The group also wanted to reassure investors by affirming that it could maintain its meteoric growth thanks to a large customer base and that its new products would help it exceed the turnover milestone of 1,000 billion dollars in chips intended for AI. Nvidia shares, however, fell 1.6% in off-day trading, a sign that investors believe that the giant will have to deal with greater competition in the future.

A WALL STREET

The New York Stock Exchange ended up on Wednesday, after three sessions of losses, driven by optimism around technology stocks and semiconductors before Nvidia’s quarterly results.

The Dow Jones index gained 1.31%, or 645.47 points, to 50,009.35 points. The broader Standard & Poor’s 500 gained 79.36 points, or 1.08% to 7,432.97 points. The Nasdaq Composite advanced 399.65 points, or 1.55% to 26,270.359 points.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei index rose 3.65% to 61,989.23 points, and the broader Topix rose 2.07% to 3,870.12 points. The Japanese market recorded its strongest increase in two weeks, thanks to renewed enthusiasm for technology stocks and the easing of geopolitical tensions linked to the war in Iran.

SoftBank Group soars by 19.85%, Socionext by 19.13% and Ibiden by 14.71%.

The MSCI index bringing together stocks from Asia and the Pacific (excluding Japan) gained 2.6%, ending four consecutive sessions of decline. Asian markets are supported by information that several ships were able to cross the Strait of Hormuz, while Nvidia’s higher-than-forecast results and the suspension of the Samsung Electronics employee strike are pushing chip manufacturers higher.

In Hong Kong, the benchmark Hang Seng Index is, however, overall stable, while the South Korean Kospi rose by 8.03% and the benchmark Taiwan index rose by 8.38%.

In China, the Shanghai SSE Composite gained 0.07% and the CSI 300 rose 0.75%, the indices being driven by the hope of a peace agreement between the United States and Iran and the semiconductor sector.

VALUES TO FOLLOW IN EUROPE:

CHANGES

The dollar gained 0.08% on Thursday against a basket of reference currencies. The greenback remains below its six-week peak after falling on expectations that Washington was close to striking a deal with Tehran to end the war in the Middle East.

The euro is practically stable (-0.05%) at 1.1620 dollars, after having fallen on Wednesday to its lowest level since April 7 at 1.1583 dollars before rebounding.

The pound sterling is also almost unchanged (-0.02%), at 1.3428 dollars.

The yen is trading at 158.99 per dollar after gaining ascendancy over the greenback for the first time in eight sessions on Wednesday.

Junko Koeda, a member of the Bank of Japan’s monetary policy committee, said Thursday that the central bank should continue to raise rates while core inflation is already around the 2 percent target.

On the indicator side, the S&P Global flash manufacturing PMI index shows an expansion in May to 54.5 after 55.1 in April.

“Overall, external demand was exceptionally strong despite the conflict between the US and Iran,” DBS analysts wrote in a note. “This could give the Bank of Japan (BoJ) the confidence to raise rates in June, which should lift the yen if there are no fiscal setbacks.”

The Australian dollar fell, 0.3% to $0.7129, as investors reduced their bets on a tightening of the monetary policy of the Reserve Bank of Australia (RBA) for this year and following the publication of an indicator on the unemployment rate, which reached its highest level since 2021.

RATE

The yield on ten-year US Treasury bonds started to rise again on Thursday, taking 2.3 basis points, to 4.5935%, after a decline of around 10 points the day before.

It reached its highest level since January 2025 on Tuesday, climbing to 4.687%.

PATROL

The oil market rose on Thursday, recovering some of its previous losses, as investors closely followed the peace talks between the United States and Iran, while supply tensions and the reduction of American inventories provided some support to the price.

Brent rose 0.79% to $105.85 per barrel and American light crude (West Texas Intermediate, WTI) rose 0.94% to $99.18.

MAIN ECONOMIC INDICATORS ON THE AGENDA FOR MAY 21:

COUNTRY GMT INDICATOR PERIOD PREVIOUS CONSENSUS

FR 07:15 May composite PMI index 47.7 47.6

(preliminary)

Manufacturing PMI May 52.2 52.8

(preliminary)

Services PMI May 46.6 46.5

(preliminary)

DE 07h30 Composite PMI index never 48.4 48.4

(preliminary)

Manufacturing PMI May 51.0 51.4

(preliminary)

Services PMI May 47.0 46.9

(preliminary)

EZ 08h00 Composite PMI index ever 48.8 48.8

(preliminary)

Manufacturing PMI May 51.8 52.2

(preliminary)

Services PMI May 47.7 47.6

(preliminary)

GB 08h30 Composite PMI index ever 51.6 52.6

(preliminary)

PMI index – manufacturing May 53.0 53.7

(preliminary)

Services PMI May 51.7 52.7

(preliminary)

USA 12:30 Weekly weekly registrations at 210,000 211,000

chômage 16 mai

USA 12h30 Philly Fed mai 18,0 26,7

(Rédigé par Claude Chendjou, édité par Augustin Turpin)