European stocks and US equity futures experienced a pause on Wednesday as traders searched for new catalysts to continue the recent surge driven by technology stocks. The S&P 500 contracts remained steady in a holiday-thinned trading session, following the index reaching its 31st record high of 2024, primarily fueled by the remarkable performance of artificial intelligence giant Nvidia Corp., now the world’s most valuable company. Meanwhile, the pan-European Stoxx 600 slipped by 0.2% after two consecutive days of gains, and bond yields across the euro area inched higher.
Tech Sector Resilience and Market Trends
Despite a minor setback caused by French political tensions, European stocks remain about 2% below their recent record highs. Wall Street continues to benefit from the ongoing AI boom and robust economic growth, which is expected to support corporate earnings, particularly in the technology sector. UK data released on Wednesday suggested that inflation is slowing across the developed world, potentially paving the way for central banks to cut interest rates.
Benoit Anne, head of investment solutions at MFS Investment Management, commented on the favorable conditions: “We are in a soft landing scenario, central banks have started easing policy or will start to ease soon, and we may be facing a wave of positive productivity shock thanks to technology. Put all that together and you have a very supportive environment for global equities.”
Bond Yields and Central Bank Policies
Although US Treasuries were not trading on Wednesday, government bond yields across Europe edged higher. UK 10-year government borrowing costs rose by about three basis points, and the pound strengthened despite data showing inflation had slowed to the Bank of England’s 2% target. However, price pressures remained persistent in the key services sector, making a rate cut at the BOE’s upcoming meeting unlikely.
Zara Nokes, a global market analyst at JPMorgan Asset Management, stated, “If this stickiness in domestic price pressures continues, alongside ongoing resilience in economic activity, an August rate cut could well be off the table too.”
Political Risks and Market Reactions
Investors also monitored developments in France, which received criticism from the European Union for violating the bloc’s deficit and debt rules. French 10-year bond yields rose by almost four basis points, while the spread relative to their German counterparts remained at its widest since 2017. This spread reflects concerns that the upcoming snap election could result in a victory for far-right groups advocating high-spending policies.
The selloff in French assets has subsided somewhat, but political risks continue to unsettle investors and companies. On Wednesday, Italian sneaker company Golden Goose Group SpA canceled its initial public offering, citing a “significant deterioration in market conditions.”
These market dynamics illustrate the intricate balance between technological advancements, economic policies, and geopolitical uncertainties. For investors, staying informed and adjusting investment planning and investment management strategies accordingly is essential.
