European Shares Trade Steady as Focus Turns to US Election.
European stocks were stable as traders’ focus turned to Tuesday’s US election and a Federal Reserve interest-rate decision looming later in the week.
The Stoxx Europe 600 Index was unchanged as of 8:43 a.m. in London, with energy and healthcare shares leading declines while miners and utilities were among those gaining. Vestas Wind Systems A/S dropped after saying it expects full-year earnings at the lower end of its guided range. Carrefour SA advanced as the French grocer is studying ways to boost its valuation and Associated British Foods Plc gained as annual profit jumped and the British conglomerate launched another share buyback program.
This week is significant for markets and the global economy, as the outcome of the US vote will help shape the geopolitical landscape over the next four years. Central banks responsible for more than a third of the global economy decide on borrowing costs in the wake of the vote, clinging to whatever certainties they can discern on the likely path of American policy during the elected candidate’s term.
In the US, surveys show the race for the presidency between Donald Trump and Kamala Harris close to deadlocked both nationally and across swing states. Volatility could rise if a disputed result drags out the vote count.
“Regardless of who becomes president, both tax and spending plans share a common outcome: substantial increases in unfunded deficits over the next decade, likely leading to structurally higher Treasury yields than we’ve seen in the past,” said Susana Cruz, strategist at Panmure Liberum.
Traders are wondering what US political landscape will confront them on Wednesday and some investors could rotate back into European stocks and out of US peers if Harris wins, pressuring US equities, according to RBC Capital Markets strategists.
Thursday will be when the Fed announces its next decision on interest rates, with traders set to closely follow Chair Jerome Powell’s press conference. Earlier that day, the Bank of England’s Monetary Policy Committee will also meet.
In the US, “deficits are projected to be slightly higher under Trump, which may elevate expectations for inflation and yields,” said Cruz. “However, we don’t anticipate a bond selloff, given that the dollar remains the world’s reserve currency.”
“That said, investors may consider diversifying,” she said. “For example, UK stocks appear undervalued and could benefit from stronger GDP growth in the coming year, offering an attractive diversification opportunity.”