Major European markets experienced a volatile run last week as bond yields trade at elevated levels. This follows fears of monetary tightening by the European Central Bank (ECB) due to the energy shock resulting from the conflict in the Middle East, which has led to an upward revision of short- and medium-term inflation outlooks.

Over the past week, the CAC 40 recorded a decline of approximately 2%, significantly underperforming the FTSE 100 (-0.5%) and the DAX (-1.7%).

An underlying trend that remains fragile

The market's underlying trend currently supports the old adage advising investors to 'sell in May and go away'.

According to this proverb, equity performance tends to be lower than in other months of the year, prompting market participants to exit the market before the summer to remain on the sidelines for a few weeks.

Since May 1st, the CAC 40 has lost just over 2%. The month has also started poorly for the Euro STOXX 50 index, which has shed 0.9% over the period.

Buoyed by the strength of AI-related stocks, Wall Street is faring better, with the S&P 500 having gained 2.7% so far.

Red alert on rates

The difficulty of investing in Europe is increasing, not only due to rising inflationary pressures and a monetary policy on the verge of shifting, but also because of intensifying risks to growth.

Against a backdrop of soaring gasoline prices, Eurozone inflation accelerated again in April to reach 3%, compared to 2.6% in March and 1.9% in February, its highest level since October 2023.

These concerns are reflected in a rise in bond yields, which broke through all resistance levels on Friday. The Bund surged 12 basis points to 3.1680%, while OATs gained 15 basis points to 3.967%.

The ten-year Treasury yield was not spared, reaching 4.60% on Friday, its highest level since May 2025, and many analysts expect it to climb toward 5%.

This nervousness is expected to prevail ahead of several key milestones regarding economic indicators, central banks, and corporate earnings.

A busy agenda, between macroeconomics and tech

While no major statistics are expected this Monday, European investors are likely to pay close attention on Thursday to the publication of preliminary Eurozone PMI figures for May.

These activity indicators, based on surveys of purchasing managers and generally considered reliable signals of economic trends, have recently shown signs of slowing down.

The latest S&P Global survey marked a downward break in Eurozone activity in April, with the composite PMI index falling below the neutrality threshold of 50 to 48.8, compared to 50.7 in March. This is its lowest level since December 2024.

Wednesday promises to be particularly busy, featuring the latest UK inflation figures, the minutes of the Fed's last monetary policy meeting, and Nvidia's quarterly results.

In a note published overnight, Dan Ives, the star analyst at Wedbush Securities, suggests that this release could mark a new peak for a US tech sector currently in a state of grace.

'We estimate that tech stocks could jump another 10% to 12% by the end of the year, as the market fully grasps the historic scale of the ongoing 4th Industrial Revolution, which remains masterfully led by US tech giants and their global monetization of AI', the professional emphasizes.

The specter of 150-dollar oil

The Nikkei index on the Tokyo Stock Exchange lost 0.7% in a market characterized by a wait-and-see attitude ahead of an intense week.

The euro remains under pressure against the dollar, penalized by the upward revision of inflation expectations in the United States, which fuels market fears of Fed monetary tightening and a possible rate hike in 2027. The single currency continues to trade below the 1.1630 threshold against the greenback.

In the energy market, crude prices remain near four-year highs, still supported by the blockade of the Strait of Hormuz.

North Sea Brent crude is up another 1.7% at nearly 111.2 dollars, and US light crude (WTI) is gaining over 2% around 107.6 dollars.

Specialists at SG warn that due to lengthening logistics lead times (52 days to supply end-users), the situation could remain critical until mid-June. This could, in their view, propel Brent to 125 dollars, while an extension of the blockade until the end of June would cause a spike to 150 dollars, delaying any return to price normalcy until December 2027.