The investment bank cited strong earnings growth by the five mega-cap tech stocks and a higher fair value price-to-earnings ratio.
Even though long-term U.S. Treasury yields swooned below 4.2% last week for the first time since April 1, as disinflation resumed alongside a hawkish policy tilt from Federal Reserve policymakers, the dollar surged anyway and recorded its best week in almost two months.
That’s largely down to investor fright at French President Emmanuel Macron’s decision to call snap parliamentary elections for next month, with the French far right high in the polls at this month’s European elections.
With French sovereign credit ratings in the balance and nerves about the fiscal implications of a change in the parliamentary majority, the premium on French 10-year government debt yields over Germany soared last week to their highest since 2017 at more than 77 basis points.
France’s CAC40 stock benchmark skidded 4.6% over the week, underperforming Wall Street and world indexes by 6.8% and 5.5% respectively.
Although both French stocks and bonds calmed a touch on Monday, potential ructions at the heart of the euro zone saw the euro slide to six-week lows against the dollar on Friday – recovering only modestly on Monday to regain a foothold above 1.07.
Broader euro zone government debt spreads widened too, although euro zone stocks steadied on Monday.
Wall Street bank Citi’s global equity strategists cut European equities to neutral from overweight, citing increased political risks in France.
European Central Bank Chief Economist Philip Lane said on Monday that the upheaval in euro zone bond markets, centred around France, was not disorderly so far, effectively playing down the need for the ECB to intervene.
“What we are seeing in the markets is a repricing but it is not in the world of disorderly markets right now,” Lane told a Reuters NEXT Newsmaker interview at the London Stock Exchange.
