European markets retreat as French political crisis deepens

European markets retreat amid political uncertainty

​European shares have taken a step back after touching record highs, with the STOXX Europe 600 closing 0.1% lower at 570.1. The retreat comes as investors digest renewed political uncertainty in France and reassess valuations following the strong rally seen in recent weeks.

​The mixed performance across sectors highlights the divergent forces at play. While technology and energy sectors managed to post gains, banks and consumer discretionary stocks faced selling pressure. This sector rotation suggests investors are carefully selecting where to deploy capital in the current environment.

​Market breadth remained relatively weak throughout the session, with decliners outnumbering advancers across most European bourses. The subdued tone reflects caution ahead of key economic data releases and ongoing geopolitical developments that continue to shape investor sentiment.

​The intraday record high for the STOXX 600 demonstrates that the underlying bullish trend remains intact despite the pullback. However, the inability to hold these gains suggests some profit-taking may be underway as traders lock in recent profits.

​French political turmoil weighs on sentiment

​France has emerged as the primary source of market concern, with the CAC 40 falling 0.7% following Prime Minister Sebastien Lecornu's appointment of Roland Lescure as finance minister. The political reshuffling has reignited concerns about France's fiscal trajectory and policy stability.

​The broader impact extended beyond French equities, with the euro weakening to below 87 pence (p) against British pound, marking its lowest level since mid-September. French bond yields surged more than 10 basis points (bp) as investors demanded higher compensation for political risk.

​Eurozone banks bore the brunt of the selloff, declining 0.6% as a sector. Société Générale, Crédit Agricole and BNP Paribas all posted notable losses as investors reassessed their exposure to French financial institutions amid the political uncertainty.

​The political crisis in France serves as a reminder of the fragility of European politics and its potential to disrupt markets. With France being the eurozone's second-largest economy, any prolonged instability could have wider implications for European growth and monetary policy.

​Oil and gold provide support

​Despite the broader market weakness, commodities provided a bright spot. Oil and gas stocks rose 0.8% after Organisation of the Petroleum Exporting Countries plus allies (OPEC+) announced a smaller-than-expected production increase, supporting crude prices and benefiting energy majors.

​BP shares climbed as much as 1.8% while Shell advanced 1.1%, helping to cushion the FTSE 100's decline from record highs. The oil majors' performance demonstrates their continued ability to respond positively to supply-side developments in the energy market.

​Gold miners also rallied as the precious metal hit a record high above $3900 per ounce. Fresnillo surged 2.7%, Endeavour Mining gained 1.4%, and Hochschild Mining posted solid gains as investors sought safe-haven assets amid the political uncertainty.

​The technology sector also managed to buck the downward trend, rising 0.5%. ASML, the Dutch semiconductor equipment maker, advanced 1.6% as investors continued to favour companies with strong growth prospects and exposure to artificial intelligence (AI) trends.

​UK markets pull back from record highs

​The FTSE 100 retreated 0.2% from its record high as the British pound fell 0.3% to around $1.34. The pullback comes after a strong run that has seen  United Kingdom (UK) equities outperform many of their European counterparts in recent months.

​UK bond yields rose in tandem with their European counterparts, with 30-year gilt yields climbing more than 5 bp. The broad-based selling in sovereign debt markets reflected concerns about fiscal sustainability and the impact of political instability on government borrowing costs.

​The pound's weakness against the United States (US) dollar provided some support for FTSE 100 multinational companies that generate significant overseas revenues. However, this currency tailwind was insufficient to prevent the index from pulling back from its recent peak.

​Market breadth in London was mixed, with gains in energy and mining stocks offset by weakness in financial services and consumer discretionary names. This sector rotation suggests investors are repositioning portfolios rather than engaging in wholesale selling.

Corporate movers highlight mixed performance

​Individual company moves painted a picture of divergent fortunes across sectors.

• SEB, the French small domestic appliance maker, plunged 22.3% after slashing its full-year sales and profit guidance, highlighting ongoing challenges in the consumer goods sector
• ​Aston Martin shares dropped as much as 11% after the luxury carmaker warned that 2025 earnings would miss expectations. The disappointing outlook underscores the difficulties facing premium automotive brands as consumer spending patterns shift
• ​Mondi fell approximately 14% following weak third-quarter (Q3) results and news of a delayed project. The forestry and packaging group's troubles reflect broader concerns about industrial demand and the impact of economic uncertainty on capital-intensive businesses.
• ​On the positive side, Speedy Hire jumped 12% on news of a new partnership with ProService, while Shawbrook confirmed plans for a London initial public offering (IPO) seeking a valuation near £2 billion. These corporate actions demonstrate that dealmaking and growth initiatives continue despite market volatility.