European shares declined on Friday, with the pan-European STOXX 600 index falling 1% to 611.04 points as of 10:24 AM London time, according to Bloomberg reports. The index was tracking for a 2.5% weekly decline after rising for four consecutive weeks. Most major regional markets mirrored this decline, with S&P 500 futures unchanged and Dow Jones Industrial Average futures falling 0.3%. In contrast, Nasdaq 100 futures rose 0.6% on strong tech results, with the index on track for a fourth straight weekly gain. European stock markets ended Thursday mixed, with the Euro Stoxx 50 slipping 0.3% and Germany's DAX easing 0.2%, while France's CAC 40 bucked the trend, gaining 0.9%, and Switzerland's Market Index outperformed, rising 1.4%.
The eurozone has entered a recession as the flash composite PMI fell to 48.6 in April from 50.7 in March, marking the weakest performance in nearly a year and a half since November 2024, according to S&P Global data. Services PMI dropped to 47.4 from 50.2, effectively the weakest reading since the pandemic lockdowns of early 2021. As per S&P Global chief business economist Chris Williamson, April's flash PMI has moved into contraction territory for the first time since late 2024, signalling a 0.1% quarterly rate of GDP decline after a 0.2% gain had been signalled for the first quarter. The war in the Middle East has pushed input costs and output prices to their highest monthly increases in more than three years, exacerbated supply-chain delays and weighed on business confidence, which fell to its weakest level since late 2022.
Global bond markets are heading for their worst week in a month as investors grow increasingly uneasy about the stalemate between the US and Iran, according to Bloomberg reports. Treasury two-year yields have risen 12 basis points since Monday to 3.83%, while UK two-year yields have risen 30 basis points to 4.42%. Brent crude prices are on track for their biggest weekly gain since the first week of the conflict, with the surge reflecting mounting concern that prolonged disruption to energy supplies will keep inflation elevated. As per Ariel Bezalel, investment manager for fixed income at Jupiter Asset Management, "I do worry that in the coming days the Iranians will really sink their heels in and call Trump's bluff." Investors are taking profits and reducing rate exposure amid fears of wild bond-market swings similar to those seen in March.
Despite broader market weakness, tech shares rallied on strong results from Intel Corp. and SAP SE, with the Nasdaq 100 on track for a fourth straight weekly gain. Intel surged 25% in premarket trading on a blockbuster sales forecast that shattered Wall Street expectations, signaling that the long-struggling chipmaker is benefiting from the giant build-out of artificial intelligence computing. SAP SE climbed 5.1% as its results helped temper fears of disruption from artificial intelligence for software firms. As per Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers, "Those who called the end of the AI trade made a big mistake, as we can see looking at the semiconductor space. The earnings growth is just astounding." The resurgent optimism over AI economic potential has powered semiconductor manufacturers to an unprecedented 17-day rally, with investors seeing the sector as at little risk of spillover from the Iranian war.
The European Central Bank faces a stagflation dilemma, with traders adding to bets on interest-rate hikes this week, pricing 67 basis points of increases this year, up from 50 basis points. For the Bank of England, swaps moved to price 63 basis points of increases, compared to 30 basis points on Monday. Meanwhile, in the US, swaps now imply the Federal Reserve is likely to keep policy steady through year-end, having indicated a 50% chance of a quarter-point cut at the start of the week. As per Wei Li, global chief investment strategist at BlackRock Inc., "Markets have swung wildly in terms of rates repricing. Even if there's a resolution between the US and Iran, I don't think we are going back to the previous environment where multiple cuts were on the table." The slate of central bank meetings next week, with decisions due in the US, Europe, Japan, UK and Canada, adds to market uncertainty.
