European shares close lower as French fiscal turmoil drives weekly loss

 European shares declined on Friday, capping a bruising week in which riots in France, jitters over how the AI boom will be paid for and surging oil prices sent investors hunting for shelter. 

The pan-European STOXX 600 fell 0.3% posting a weekly loss of more than 1%. France’s CAC 40 dropped 0.4%, touching a near two-week low, while Germany’s DAX lost 0.9% and London’s FTSE 100 shed 0.6%.

The selling followed a rout on Thursday, when the STOXX 600 posted its steepest fall in three weeks, led by a sell-off in banks. 

France was the epicentre. Authorities imposed curfews in parts of Paris, Lille and Nice on Monday after a weekend of riots and looting, and more nationwide demonstrations are planned for Saturday, with troops set to reinforce police. The CAC 40 logged its sharpest one-day fall since early October on Thursday. 

The turmoil spilled into the bond market. France’s 10-year yield briefly topped 5% on Wednesday for the first time since 2002, a 24-year high, as street unrest piled on top of a budget standoff.

Investors dumped French assets and sought refuge in core German Bunds and U.S. Treasuries. Capital Economics said the premium French bonds pay over the rest of the euro zone probably has further to widen in the coming months. Data on Friday showed French business activity unexpectedly contracted in October.

Tech was the second pressure point. ASML, Infineon and STMicroelectronics sliding 2% to 6% as a global sell-off in AI-linked shares reached Europe.

The focus shifted to the size of the bill. Solid results from SAP, BE Semiconductor and Meta Platforms did little to calm nerves, with investors fixated on the sums needed to keep the AI build-out going. . 

Company news added to the gloom. Luxury group Kering lost more than 10% after Gucci’s third-quarter sales fell, undermining hopes of a recovery plan. A rare bright spot was Swiss cement maker Holcim, which gained about 5% after raising its full-year earnings forecast.

Volvo Cars slumped over 27% to a record low after reporting a bigger-than-expected ⁠third-quarter operating loss.

Oil spike dents risk

Energy-importing Europe also had oil to contend with. Brent crude rose to a five-month high of $114 a barrel after a 4% surge on Thursday, as Yemen’s Houthis stepped up attacks on Saudi energy and transport infrastructure. On Friday, it is up more than 3%, trading above $117.

The group said its targets included Aramco sites in Yanbu and Shaybah. Aramco told staff to evacuate its headquarters in Dhahran. Reports of widening U.S. diplomatic evacuations across the region and unconfirmed explosions near the Strait of Hormuz added to the unease, keeping inflation risks elevated.

That complicates the picture for central banks, which meet next week. The Fed is expected to hold on Oct. 28, although traders see roughly an 80% chance of a hike by December, according to CME’s FedWatch tool.

The European Central Bank, also seen on hold, decides on Oct. 29, followed by the Bank of Japan on Oct. 30. Investors will head into the weekend braced for Saturday’s marches in France