(Bloomberg) — European stocks headed for their worst week since October on worries about political unrest in France. US equity futures fell as traders sought shelter.
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The Stoxx 600 weakened 0.8% to extend losses since Friday to 2.2%. France’s CAC 40 index pared gains this year, with banking stocks such as BNP Paribas SA and Societe Generale SA among the biggest losers. The euro fell to its lowest against the dollar since April.
The S&P 500 and Nasdaq 100 are set to open lower after notching up daily record highs this week. The dollar gauge rose against major global currencies, while Treasury yields declined four basis points.
European markets were worried after French President Emmanuel Macron announced snap legislative elections following his party’s disastrous European Parliament elections. Investors fear that the victory of Marine Le Pen’s far-right National Rally party, which leads the polls by a wide margin, will lead to looser fiscal policy.
The uncertainty caused the premium France pays on its debt relative to Germany to rise this week, on pace for the biggest step in Europe’s debt crisis of 2011.
“It is impossible to ignore the parallels between the current situation and the sovereign debt crisis, because there is a familiar focus on the election results, the spread of sovereign bonds and debt sustainability,” said Jim Reid, an analyst at Deutsche Bank AG. It is “combined with no clear indication of what to do.”
The week’s turmoil has wiped out all gains this month for regional benchmarks, with investors warning that volatility could continue until the French vote ends in July.
“Elections in France tend to be more volatile for equity markets than other developed markets,” Beata Manthey, head of European equity strategy at Citigroup Inc., told Bloomberg Television. This volatility could continue for quite some time.
Still, the current weakness does not replace the underlying strengthening in European incomes and the wider economy, he said.
In Asia, MSCI’s Asia Pacific index fell as losses in Australian and Chinese shares offset gains in benchmark Japan.
The Bank of Japan triggered fresh weakness in the yen after making investors wait until its July meeting for details on bond purchases, a move also seen as a delay in policy normalization. However, Governor Kazuo Ueda rejected the notion that the rate hike could not be repeated next month.
“A weak yen may reduce flows from overseas investors in the summer,” said Hiromi Ishihara, head of equity investment at Japan’s Amundi. “That said, we still believe the BOJ will go further this year.”
This week’s highlights:
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Chicago Fed President Austan Goolsbee said, Friday
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US University of Michigan consumer sentiment, Friday
Some of the main movements in the market:
Deposit
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The Stoxx Europe 600 fell 0.8% at 10:55 am London time
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S&P 500 futures down 0.4%
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Nasdaq 100 futures down 0.2%
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Futures on the Dow Jones Industrial Average fell 0.7%
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The MSCI Asia Pacific index was little changed
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The MSCI Emerging Markets index was unchanged
currency
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Bloomberg Dollar Spot Index rose 0.3%
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The euro fell 0.5% to $1.0687
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The Japanese yen was little changed at 157.12 per dollar
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The offshore yuan was little changed at 7.2730 per dollar
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The British pound fell 0.4% to $1.2706
Cryptocurrencies
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Bitcoin rose 0.3% to $66,905.3
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Ether rose 1% to $3,512.31
Bond
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The yield on 10-year Treasuries declined four basis points to 4.21%
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Germany’s 10-year yield fell 10 basis points to 2.37%
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UK 10-year yield down eight basis points to 4.05%
Commodity
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Brent crude was little changed
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Spot gold rose 0.7% to $2,321.33 an ounce
This story was produced with the help of Bloomberg Automation.
–With assistance from Winnie Hsu and James Hirai.
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