Weekly equities forecast: French banks, UK housebuilders, bricks and mortar retailers

French election

French stocks are outperforming after the weekend's first round of the French election. The CAC 40is outperforming its major peers in a relief rally after the results point to a hung parliament ahead of the next round of voting on July 7th.

The far-right National Rally party led by Marine Le Pen won 33.1% of the votes, the left wing won 28%, and Macron’s coalition secured just 20%. This tells us that the most likely outcome will be a hung parliament, which is considered the least bad option for the market.

French banks: BNP Paribas

The market is experiencing a relief rally that NR looks unlikely to achieve an absolute majority. This result had been considered the worst-case scenario, given fears of high fiscal spending and mounting debt levels, which had pulled stocks and, particularly, banks lower heading into the first round of the election.

As a result, banks are leading the charge higher, with names such as Credit Agricole, BNP Paribas, and Société Générale leading the CAC higher.

Along with the results of the French elections, attention will also be on Eurozone inflation data on Tuesday, which is expected to show that CPI eased to 2.5% YoY from 2.6%. Cooling inflation could fuel expectations that the ECB will move to cut rates again after reducing rates by 25 basis points at the start of June. Falling rates could help ease the squeeze on banks’ margins, boosting the share price.

UK election

The UK heads to the polls to vote on July 4th. The Labour party is widely expected to win by a large majority. Such a result could boost sentiment amid expectations of increased stability. That said, this is not likely to spark a strong reaction; however, the Labour win could boost some sectors.

UK Housebuilders: Vistry

Labour has pledged to build 1.5 million new homes by shaking up the planning system and fast-tracking brownfield sites. This would help housebuilders such as Taylor Wimpey, Vistry, and Barrat Developments, among others, which slow approvals and high interest rates have hampered.

A promise to extend the mortgage guarantee scheme and rising expectations that the BoE could cut rates in August will support real estate stocks.

However, a Labour administration could also put increased emphasis on building affordable housing, which would be good news for Vistry, which partners with affordable housing associations to provide more affordable housing. A large number of approvals for Vistry could help lift the stock even if the broader housing market struggles.

Bricks & Mortar retailers: Associated British Food

Labour has pledged to help the struggling UK high streets, which have been in decline. The party’s plan to overhaul the business rates system would lift high-street operators and help level the playing field between brick-and-mortar retailers and online retailers. Stores with a large footprint, such as Primark and supermarkets, could perform well.

Should this pledge be accompanied by a boost in consumer confidence, the stocks could experience a double boost.

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