French political uncertainty and China trade row cast shadow over Europe

Political uncertainty in France and an EU trade dispute with China are casting a shadow over European corporate earnings, investors say, despite forecasts pointing to better corporate results. According to LSEG I/B/E/S equity research, second-quarter earnings for companies in the pan-European STOXX 600 index are expected to rise by 2%, with revenues up 1.7%. This would be the first quarter of growth since early 2023. Investors had been optimistic about Europe's stock markets as the European Central Bank adopted a looser policy and the economic outlook improved. However, French President Emmanuel Macron's unexpected decision to call a general election has raised doubts.

Concerns about France's fiscal discipline under a potential new right- or left-wing government have shaken confidence, as have fears of tax and minimum wage increases under a left-wing government. In response, analysts have lowered earnings expectations for French blue-chip companies and scaled back expectations for European equities in recent weeks. The STOXX 600 index, which hit a record high on 7 June, the last trading day before Macron dissolved parliament, has since fallen 2.5%. France's CAC 40 has been the hardest hit, at its lowest level since January (the CAC 40 is a benchmark French stock market index that represents a capitalisation-weighted measure of the 40 largest stocks among the 100 largest market caps on Euronext Paris)."It could be the typical seasonal pattern where you get some downgrades going into earnings season, but you don't get as positive a signal as you did last quarter," said David Groman, European equity strategist at Citigroup. "You've got all these political risks coming to the fore when the fundamental story looked pretty strong," he added.

Source: with Reuters and other agencies

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