European gains fade as French political concerns remain

• European gains fade as French concerns dominate
• Central banks in focus, with BoE expected to hold despite potential return to 2% CPI
• Mixed Chinese data sees a welcome rebound in retail sales

Early gains are fading in Europe, with French political uncertainty adding to a somewhat shaky environment for stocks globally. President Macron’s decision to call parliamentary election represents a roll of the dice amid a groundswell of support for the far-right National Rally party, but markets are increasingly having to weigh up the potential consequences should it backfire. With the CAC having lost 6% over the course of last week alone, traders will remain split between those spotting an opportunity to buy the dip, and those aware of the risk posed to French stocks should support for Macron wane further. With the initial pop already starting to fade, it is worthwhile noting that any gains seen in French stocks will likely remain under the microscope for as long as this political uncertainty remains.

This week brings a particular focus on central banks with the RBA kicking off a series of monetary policy decisions that could see an interest rate cut from the SNB on Thursday morning. A somewhat indecisive start for UK stocks does highlight the uncertainty over quite what stance the Bank of England will take when Andrew Bailey steps up on Thursday. With inflation expected to fall back below the 2% target ahead of the Bank of England meeting, many will question whether this could pave the way for a surprise rate cut at Threadneedle Street. Nonetheless with core inflation expected to remain elevated and huge political uncertainty remaining ahead of the UK election, it looks more likely that Bailey will hold off for the time being.

Overnight data out of China painted a contrasting picture across different segments of the economy, with a deterioration across both industrial production and fixed asset investment causing fresh concerns for this manufacturing powerhouse. Nonetheless we did see some good news in the form of a resurgent retail sales figure, with Chinese consumer spending on the rise after four consecutive declines in this key metric. The importance of domestic consumption cannot be overstated given the increased likeliness of a tit for tat trade war after the US and European Union imposed tariffs on Chinese electric vehicles.