European stock indices ended a five-week winning streak, with the STOXX 600 index declining by 0.5%, signaling a loss of the upward momentum that had previously dominated the market. This pullback comes in a context marked by natural profit-taking after a strong rally, coupled with investor caution ahead of potential geopolitical and economic developments that could influence market direction in the near term.
Moody’s decision to downgrade the U.S. credit rating from “AAA” to “Aa1” had an immediate impact on global markets, particularly after highlighting the ballooning U.S. national debt, which has now surpassed $36 trillion. U.S. stock futures dropped more than 1% following the announcement, which also led to a rise in government bond yields. The downgrade’s ripple effects reached European markets, which turned more defensive due to the financial and psychological link between global markets and the U.S. economy.
China’s retail sales data for April came in weaker than expected, putting pressure on European luxury goods companies, many of which rely heavily on Chinese consumers as a key revenue source. Shares of brands like Hermès, Burberry, and Moncler each fell around 2% in response.
Oil prices were also negatively affected, despite stronger-than-expected industrial production in China. Weak domestic demand dragged down market sentiment, with both Brent crude and West Texas Intermediate falling by 0.8%, giving up some of the gains from earlier in the week.
On the corporate front, shares of BNP Paribas rose by 2.4% after the French bank announced a €1.08 billion share buyback program, reflecting confidence in its financial position. In contrast, Volkswagen shares dropped by 3.1% as the stock began trading ex-dividend.
Meanwhile, Ryanair issued a positive outlook despite a decline in annual profits, and Diageo reaffirmed its full-year targets, even as U.S. tariffs are expected to cost the company around $150 million. Investors are also awaiting the final eurozone inflation data for April, with forecasts pointing to an annual rise of 2.2%—a figure that remains compatible with the European Central Bank’s expected rate cut in the upcoming meeting.
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