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Analysis
June 5, 2024
The next European Parliamentary Elections are scheduled for 6 to 9 June 2024. Stock markets across the continent, the Euro and currency pairs of non-Euro EU member states all have the potential for volatility after the election. Polling and analyst views suggest that volatility around the election is likely to be limited, but the weeks following the elections could see elevated activity in some key markets.
The 2024 European elections are not expected to have a major impact on the overall position of the market cycle but could see significant changes in the EU. A new parliament gives the potential for both obstacles and encouragement, and changes to specific industrial or trade policies may have an impact. These will mostly be felt in European stock markets and on the value of the Euro, but it is also worth remembering US and Asian companies often have exposure to Europe as a consumer market.
The Euro Stoxx 50 (ESTOX) is a Eurozone-wide stock index that includes the fifty largest Eurozone companies by market capitalisation. Since there is no centralised European exchange, these companies are drawn from many markets and listed on multiple exchanges, several of which are owned by Euronext. Each September, the list of constituent stocks is revised, reflecting changes in national stock exchange capitalisations, with the index including stocks from the Netherlands, Belgium, Germany, France, Ireland, Italy, and Finland.
The DAX index is the benchmark index for the German stock market, consisting of the 30 largest and most liquid companies traded on the Frankfurt Stock Exchange. Given Germany’s role as Europe’s largest economy and manufacturing powerhouse, the DAX is a crucial indicator of European economic health. Election results could impact the DAX significantly, especially if there are expected changes in European economic policies or shifts in Germany’s political influence within the EU. Sectors to watch within the DAX include automotive, technology, and finance, as these industries are deeply integrated with broader EU policies.
The EUR/USD is the most-traded currency pair in the world, and a potential trading opportunity for CFD traders looking to join in potential volatility around the European Elections. An uncertain result, or one that sees major losses by centrist parties, could cause EUR/USD volatility, as traders weigh up the relative strength and stability of the European and American economies. Any indications of policy shifts that affect the Eurozone’s economic outlook, such as changes in trade agreements or fiscal policies, could lead to significant movements in the EUR/USD pair.
The EUR/GBP currency pair is another to watch during the European elections. Sometimes called ‘the Chunnel’, this pair reflects the economic relationship between the Eurozone and the United Kingdom. This relationship has changed radically since the Brexit referendum in 2016, with the UK leaving the EU in 2020. Political shifts in the European Parliament could affect trade policies and economic agreements with the UK, leading to potential pressure on both sides of the pair. Traders will be watching for any signs of change in the EU’s stance towards the UK, as well as any economic data that might suggest differing growth trajectories between the Eurozone and the UK.
Safran is a French defence company that sells military equipment, with the European market being its most important. As a major player in the aerospace sector, Safran’s performance is closely tied to EU policies on defence and technology. So its stock could be particularly sensitive to changes in European policies, related to defence spending and industrial cooperation. Election results showing a shift towards increased defence spending or changes in industrial policy could impact Safran’s stock significantly. Investors will be looking for any indications of how the new European Parliament might influence defence policy, with the integration of different European militaries a long-standing policy of the union.
How might the European elections impact global markets?
While the EU elections will mostly impact the EU itself, its results could have global implications. Changes in EU policies on trade, regulation and defence could impact global markets, including those in the US and Asia. Many US and Asian companies also have exposure to the EU market through sales to European customers.
How can EU election results influence market volatility?
Election results can create uncertainty, especially if the resulting parliament is unable to form a working coalition. Any change in the political circumstances of the EU could see rebalancing in investor portfolios, leading to increased market volatility as investors react to potential changes. However, any volatility following the election is likely to be short-lived since the underlying economic factors are unchanged.
Which stock sectors are most likely to be affected by European election outcomes?
Sectors such as finance, technology, defence, and manufacturing could potentially be affected, as they are closely tied to regulatory and policy changes within the EU.
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