European stocks fell to two-week lows on Tuesday as a relief rally following the first round of French parliamentary elections proved to be short-lived while investors awaited inflation data for hints on the euro zone’s interest rate path.
The pan-European STOXX 600 index was down 0.6% as of 0830 GMT, with insurers and automakers among the top sectoral decliners.
France’s blue-chip CAC 40 index dropped 0.7% as investors remained cautious ahead of a second-round vote on July 7. Battered French markets found some respite on Monday after Marine Le Pen’s National Rally (RN) party scored a smaller win than some polls had expected, lowering the chance of an absolute majority for the far-right party.
“Both potential outcomes of this election, whether a far-right or a far-left coalition, don’t give political stability. Both would lead to a lot of indecision, which can cause some concern for investors,” said Daniela Hathorn, senior market analyst at Capital.com.
“Regardless of the knee-jerk reaction that we may see next Monday, we must consider how this election impacts the political situation not only in France but also in the whole of the eurozone.”
Investors are awaiting euro zone inflation data for June later in the day, with economists expecting price pressures to cool slightly from the prior month.
German inflation fell more than expected in June, data on Monday showed, resuming its downward trend after two consecutive months of increases and leaving the door open for another rate cut by the European Central Bank (ECB) in September.
However, ECB President Christine Lagarde said on Monday that benign economic developments indicate that rate cuts are not urgent.
Pierre Wunsch, another ECB policymaker, said the central bank’s next rate cut is still a relatively easy decision, but subsequent moves should only come once inflation is clearly heading towards the 2% target.
Among individual stocks, Sodexo dropped 5.2% after the French food caterer posted third-quarter sales below expectations, citing a slowdown in China.
Siemens Energy rose 3.6% after the energy engineering group announced said it plans to recruit more than 10,000 employees by 2030.
French office services and call centre company Teleperformance rose 3.6% after Morgan Stanley started coverage on the stock with an “overweight” rating.
Shares in Germany’s HelloFresh jumped about 16% after J.P.Morgan removed the food delivery company from its negative catalyst watch.
