European Midday Briefing: Shares Fall; The AI Trade Is Still In Trouble

Stocks

Summary:

European stocks fell as the U.S. selloff spread, with AI-valuation fears, weak consumer signals, and uncertain Fed rate-cut prospects weighing on sentiment. Oil, metals, and gas declined, while PMIs showed slowing momentum.

MARKET WRAPS

Stocks:

The broad market selloff that began in the U.S. hit European assets Thursday, with all indexes down.

Shares in semiconductor companies fell after Thursday's surge, along with mining and energy stocks were also lower on easing geopolitical tensions.

Ukrainian President Volodymyr Zelensky has agreed to work on a U.S.-drafted peace plan .

SEB said that the falls in U.S. markets Thursday were about more than AI bubble worries, and the labor market statistics drove pessimism, adding that the data suggested that the Federal Reserve won't be in any great hurry to cut interest rates.

"Yesterday's moves make it clear that investors who struggle to try to justify sky-high AI valuations not only need to have a solid belief in AI technology, but also need the backing of lower interest rates to make ends meet."

Wall Street is also growing wary that two of the S&P 500's key consumer sectors were languishing, hinting that American households may be finally pulling back on spending.

"Consumer spending accounts for roughly 70% of the U.S. economy, so as much as the market focuses on AI and earnings from Nvidia, from an economic perspective, consumer activity represents a much more significant variable," Bespoke said.

Stocks to Watch

H&M was starting to deliver a more sustainable investment proposition , Deutsche Bank said as it lowered its target price on the stock to 155 Swedish kronor from 160 kronor and retained the hold rating.

However, the bank said recent data, combined with weather patterns and peer commentary, suggests that October and even November might not be as strong as hoped, pointing to sequentially weaker fourth-quarter sales.

U.S. Markets:

Dow futures were inching up early, the VIX volatility index held above 25, while bitcoin skidded below $85,000.

On Friday investors will eye a consumer-confidence reading and Fed speakers.

A final November consumer-sentiment reading is due from the University of Michigan at 15:00 GMT.

A preliminary readout indicated sentiment has fallen toward record-low levels.

Also due are a Bureau of Labor Statistics delayed report on inflation-adjusted earnings, and the S&P Global flash purchasing managers index.

Forex:

The euro held its ground against the dollar, showing little reaction after mixed French and German purchasing managers' index surveys and the eurozone manufacturing and services data.

The dollar continued to trade softer after the delayed September nonfarm payrolls report.

The supply-driven increase in unemployment eased labor-market tightness, boosting rate-cut expectations with Treasury yields and the dollar slightly lower, Danske Bank said.

However, this trend was unlikely to persist as the figures aren't a strong signal for the Fed to cut rates, it added.

Sterling fell against the euro and trimmed gains versus the dollar, following weaker-than-expected U.K. retail sales data.

The prospects of a bleak U.K. budget next Wednesday and Black Friday discounts indicate consumers reined in spending in October, Wealth Club said, adding that the BOE might have to ride to the rescue with rate cuts.

Bonds:

European government bond yields were little moved after a key measure of eurozone manufacturing and services activity fell slightly in November.

The 10-year French OAT yield fell 1 basis point and its German equivalent fell 2 basis points after French and German PMI surveys .

Treasury yields declined, extending Thursday's moves in the wake of mixed signals from the delayed September jobs report.

"The September jobs data was better than expected, potentially reinforcing fears that the Fed is hawkish," Global X said.

"We continue to believe that is overdone, and the Fed is concerned about the labor market amid slowing inflation."

SEB Research continued to expect the 10-year Treasury yield to fall to 3.90% in the first quarter of 2026, but acknowledged that, for it to reach our 3.90% target in Q1, markets need to regain confidence in rate cuts.

TD Securities expects 10-year Treasury yields to finish 2026 at 3.50% , notably below consensus and forward expectations.

"In some respects, 2026 is shaping up as a continuation of 2025-we look for Treasurys to once again outperform."

Correlations between global rates and U.S. are still quite strong, so falling U.S. yields will help to keep a lid on term borrowing rates elsewhere, it said.

Federated Hermes said it was too early to be confident about the Fed's path in 2026 and while some amount of easing is expected, money market funds were likely to cope with that well.

Energy:

Oil prices extended losses after the Ukrainian President agreed to work on a U.S.-drafted peace plan, easing geopolitical concerns.

Benchmarks were headed for a weekly loss of around 3% as prospects of an oversupplied market continued to weigh on sentiment.

Meanwhile, market watchers continue to closely monitor Russian flows as U.S. sanctions on Russia's Rosneft and Lukoil come into effect.

"Any peace deal could have broader implications for the oil market," ANZ said.

"If accompanied by the elimination of U.S. sanctions on Russian oil, it could release more oil onto the global market."

Gas

European natural-gas prices were lower.

Prices have been broadly rangebound in recent weeks, hovering between 30 and 32 euros a megawatt hour.

"Recent temperatures have dropped, boosting heating demand," ANZ said.

"However, the latest weather models are signalling a slower return to milder conditions next month."

According to industry group Gas Infrastructure Europe, EU gas storage is currently 80.7% full.

Metals:

Gold prices were on track for a weekly loss after the U.S. job report fed uncertainty over the Fed's next policy move.

"U.S. jobs growth topped expectations in September, but the employment rate continued to rise," ANZ said.

"This underscores the lingering fragility of the labor market."

Prices were also pressured by an easing geopolitical risk premium on news that Ukraine will work on a U.S.-drafted plan to end the war.

Base Metals

Base metal prices were on track for weekly losses as uncertainty over rate cuts in the U.S. weighed on sentiment.

EMEA HEADLINES

Eurozone Business Activity Continues Growth Despite Manufacturing Hit

Business activity continued to grow in the eurozone in November, albeit at a slightly slower pace, hurt by lingering weakness in the manufacturing sector.

The eurozone's composite purchasing managers index-based on survey responses from around 5,000 manufacturers and service providers-fell to 52.4 from 52.5 in October, data firm S&P Global and Hamburg Commercial Bank said Friday.

Europe Must Look Inward to Drive Growth, ECB's Lagarde Says

Europe must break down its internal barriers to move away from a growth model that is driven by exports, European Central Bank President Christine Lagarde said.

In a speech to bankers Friday, Lagarde also highlighted Europe's vulnerability to the "weaponization" of key raw materials and technologies.

U.K. Government Borrowing Runs Ahead of Plan as Budget Looms

The U.K. government's borrowing continued to run ahead of projections in October, a deterioration in its finances that it will aim to correct with tax rises and some spending cuts in its annual budget statement next week.

The Office for National Statistics on Friday said the government borrowed 17.4 billion pounds ($22.75 billion) in October, bringing the total for the first seven months of the fiscal year to 116.8 billion pounds, 9.9 billion pounds above the amount projected by the Office for Budget Responsibility in its March forecasts.

Ubisoft Requests Stock Trading Resumption as It Logs Higher Sales

Ubisoft Entertainment said it asked Euronext to resume trading of its shares and bonds after the videogame maker posted higher sales for its fiscal second quarter due to stronger-than-expected partnerships and a robust back catalog.

The French company last week postponed the release of results at the last minute and requested that Euronext halt trading of its shares and bonds as it finalized its accounts. It said an analysis of revenue recognition from a partnership led it to restate its accounts for fiscal 2025.

Veolia to Buy U.S. Hazardous-Waste Specialist Clean Earth in $3 Billion Deal

French waste-management company Veolia Environnement said it agreed to buy U.S. hazardous-waste specialist Clean Earth from Enviri for around $3 billion including debt.

Veolia said Friday that the deal would allow it to expand in the growing U.S. hazardous waste sector.

GLOBAL NEWS

U.S. Banks Shelve $20 Billion Bailout Plan for Argentina

A planned $20 billion bailout to Argentina from JPMorgan Chase, Bank of America and Citigroup has been shelved as bankers pivot instead to a smaller, short-term loan package to support the financially distressed government, people familiar with the matter said.

Treasury Secretary Scott Bessent and the Trump administration had been seeking to bolster Argentine President Javier Milei's pro-reform party when they announced a pair of financial lifelines this fall. The package included a $20 billion currency swap with the U.S. Treasury Department and plans for a separate $20 billion bank-led debt facility.

The Middle Class Is Buckling Under Almost Five Years of Persistent Inflation

America's middle class is weary.

After nearly five years of high prices, many middle-class earners thought life would be more affordable by now. Costs for goods and services are 25% above where they were in 2020. Even though the inflation rate is below its recent 2022 high, certain essentials like coffee, ground beef and car repairs are up markedly this year.

The Web of Venezuelan Generals Accused of Fueling the Cocaine Trade

Source: morningstar

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