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On Friday, European stocks slumped as Trump reignited the US-China trade war from “war of words” coupled with stress in banks & financials on lower GE/EU bund yields after a “dovish hold” by ECB. A lower bond yield is negative for bank’s business model and NIM (net interest margin). Also, some late recovery in EUR affected the export savvy European market to some extent along with volatility in oil, negative for energy-related stocks coupled with German and Italian political squabbling.
The Stoxx-600 slumped by 0.99% to close around 389.13 after slipping from a multi-month high of 393.96 on a fresh report that the Trump administration is close to finalizing a 2nd list of $100B worth of Chinese products that will be subject to a 25% tariff if China follows through with its threat to retaliate for the US tariff on a 1st $50B batch of products already reported. President Trump already signed off Thursday on the 1st $50B batch of Chinese products for a 25% tariff and the US has officially announced the same just ahead of Friday US session.
Overall, the Stoxx-600 gained by almost 1.04% for the week even after the Friday plunge of around 1%, while for June (till date), it gained by almost 1.58% against loss of -0.59% in May. On Thursday, Stoxx-600 jumped by almost 1.23% on the plunge in EUR (-1.88%) after an unexpected dovish hold by ECB.
On Friday, most of the European markets closed in red: Germany’s DAX-30 slumped -0.6% (German coalition government/partners’ jitters on immigration issues); France's CAC-40 edged down -0.3%; The UK's FTSE tumbled -1.5% (recovery in GBP and ongoing Brexit squabbling); Spain's IBEX-35 slid -0.9%; Italy's FTSE MIB-40 plunged -1.32% (renewed Italian political tensions on issues about EU treaty). But most of the European market closed in the green for the week, thanks to the dovish hold by ECB on Thursday.
The UK market was also under stress on oil (energies) and miners (China slow down amid muted economic data and trade war concern), while Rolls-Royce jumped almost 8% on upbeat guidance and supported the market along with high dividend yielding and interest rate sensitive stocks after ECB delayed its normalization. The market is also expecting similar dovish hold by BOE in the days ahead amid increasing UK political drama and Brexit & Irish border hangover.
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