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European Shares Rally on Autos and Banks Boost; Focus on French Elections

European shares kicked off the week positively, buoyed by gains in the automobile and banking sectors. As of 0838 GMT, the pan-European STOXX 600 index had risen by 0.4%. Autos led the charge with a 1.6% increase, driven by news that the European Union and China would engage in talks regarding proposed tariffs on Chinese-made electric vehicles (EVs).

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Meanwhile, Eurozone banks climbed 0.9%, supported by strong performances from Italian lenders such as BPER, UniCredit, and Monte dei Paschi di Siena, which saw gains ranging from 2.4% to 3.7%.

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Investor attention remains focused on the upcoming first round of French parliamentary elections later this week, where early polls suggest a lead for the far-right National Rally (RN) party and its allies. The French benchmark index started the week 0.5% higher in anticipation of the electoral outcome.

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Additionally, market participants are awaiting insights into the European Central Bank’s (ECB) monetary policy direction from remarks expected later in the day by ECB board member Isabel Schnabel and other officials.

In economic news, German business morale unexpectedly declined in June, reflecting more pessimistic expectations for Europe’s largest economy. Carsten Brzeski, ING’s global head of macroeconomics, noted, “The optimism at the start of the year has given way to realism. The (latest) readings have illustrated that the German economy is still struggling to gain more momentum.”

Last week, data indicated a slowdown in German business activity over the past two months, while broader eurozone business growth also decelerated sharply.

Despite earlier losses attributed to uncertainty surrounding the French elections, European shares managed to recover ground last week. However, gains were tempered by a slowdown in the rally of technology stocks.

In other market movements:

Hochtief surged by 8.7% after Jefferies upgraded the German construction firm to “buy” from “hold,” citing its increased involvement in high-tech infrastructure projects.

Argenx, a Belgian pharmaceutical company, gained 7.1% following FDA approval for its treatment Vyvgart Hytrulo, aimed at chronic inflammatory demyelinating polyneuropathy.

Prudential (UK) rose 6.3% after announcing a $2 billion share buyback program.

On the downside:

Eurofins Scientific plummeted by up to 19% after short seller Muddy Waters disclosed a short position on the French testing company.
Zalando (Germany) declined 6.3% after Morgan Stanley downgraded the online retailer to “equal weight” from “overweight.”
The positive sentiment in European markets at the start of the week underscores optimism surrounding key sectors and events, despite ongoing economic challenges and geopolitical uncertainties.

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