Weak PMIs Put Bonds in Favour of a Risk-Off Mood – Europe Market Wrap

Risk-off trades were in favour at the end of a week in which the economic consequences of French President Macron’s decision to call a snap election were still being felt. The rise in AI stocks exhibited indications of exhaustion.

The yield on Germany’s benchmark 10-year bonds dipped seven basis points as manufacturing and services PMI readings for Europe’s two largest economies fell short of expectations. The rate on US Treasuries also fell.

The Dollar remained near its 2024 high following the PMI report, which highlighted how French political risk is weighing on growth. Traders now expect a second ECB cut in October, with an 80% likelihood of a third this year, up from around 65% on Thursday.

Macron’s surprise proposal for a referendum has stoked volatility in the region’s markets, with investors concerned that far-right leaders may wipe out an economic upswing if they win elections. European stock funds have experienced their fifth week of withdrawals, according to Bank of America strategists, using EPFR Global data.