European stock markets weakened again on Friday (October 23), capping a difficult week. The STOXX 600 fell 0.3%, marking a weekly decline of over 1%, while the CAC 40, DAX, and FTSE 100 also ended in the red. Investors sought safe-haven assets amid civil unrest in France, concerns regarding the financing of AI investments, and a surge in oil prices.
France has been a primary source of pressure, as riots and looting prompted the government to impose curfews in several regions. Political uncertainty and budgetary issues have further weighed on French assets. The yield on 10-year French government bonds briefly breached 5%—the first time since 2002—while recent data indicated an unexpected contraction in French business activity for October.
Pressure also stemmed from the technology sector, as a sell-off in AI-related stocks spread to Europe. Shares of ASML, Infineon, and STMicroelectronics fell by approximately 2% to 6%. Although companies like SAP and BE Semiconductor reported positive results, investors remain concerned about the substantial costs required to sustain AI investments.
On the corporate front, sentiment was further dampened by the performance of several firms. Kering shares plummeted more than 10% following a decline in third-quarter sales for its Gucci brand, while Volvo Cars shares dropped over 27% to a record low after the company reported an operating loss larger than anticipated. Conversely, Holcim emerged as a bright spot, raising its full-year profit forecast.
Investor attention has now shifted toward upcoming central bank decisions. The Federal Reserve is scheduled to announce its policy decision on October 28; the market expects interest rates to remain unchanged, though there is still an approximately 80% probability of a rate hike in December. Following that, the ECB will reach a decision on October 29, and the Bank of Japan on October 30.
As the weekend approaches, investors will also be closely monitoring plans for further demonstrations in France on Saturday. An escalation in unrest, developments regarding the national budget, movements in oil prices, and pressure on technology stocks will be key factors shaping European market sentiment early next week.
Newsmaker Analysis: European markets remain largely bearish and in a "risk-off" mode, driven by a confluence of factors: unrest and fiscal risks in France; a sell-off in AI-related stocks fueled by concerns over valuations and high investment costs; and rising oil prices, which could potentially reignite inflation. Should these three factors persist, the pressure on European equities is likely to continue—particularly ahead of the ECB’s decision next week. Conversely, any easing of tensions in France or a decline in energy prices could pave the way for a relief rally.