(Bloomberg) – European stocks were muted on Tuesday as French stocks underperformed after the latest poll showed a potentially close presidential race.

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The Stoxx Europe 600 index was up 0.1% at 10:44 a.m. in London, with chemicals, utilities and energy outperforming, while banking stocks fell.

The tighter-than-expected race for the French elections is now weighing on French equities. The CAC 40 index underperformed most of its major peers on Tuesday, dragged down by generally politically and regulatory sensitive stocks such as banks Societe Generale SA and BNP Paribas SA, the construction and motorway operator toll company Vinci SA, as well as the aircraft manufacturer Airbus SE.

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European stocks erased the war-fueled sell-off in Ukraine as investors were drawn to lower valuations and optimism that economic growth can continue. Still, tighter monetary policy and soaring inflation pose risks to the rally in equities.

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In the latest geopolitical news, the European Union said work was underway on additional sanctions to penalize Russia for what appear to be war crimes in Ukraine as it condemned alleged atrocities committed against civilians. Germany and a few other member states that rely on Russian gas have opposed sanctioning the energy sector, as well as its maritime trade and other key industries. EU sanctions require unanimous support.

“Central bank actions and the war remain at the center of investors’ concerns, with the main question being how rising inflation will affect economic growth and what policymakers will do,” said Nieves Benito, head of fundamental research at Santander Asset Management. “If Germany goes ahead and cuts Russian gas, we could see greater uncertainty and greater impact in the region.”

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The Spanish asset manager has reduced risk slightly and plans to enter companies with strong fundamentals.

“Growth is going to slow down quite significantly due to central bank policy, particularly the Fed becoming more restrictive,” said Grace Peters, head of EMEA investment strategy at JPMorgan Private Bank. , in an interview with Bloomberg TV.

She recommended making changes to the portfolio by increasing exposure to quality stocks, selling cyclical early cycle stocks like financials, buying health care and stocks with strong balance sheets.

Among individual moves, Vestas Wind Systems A/S jumped 10% after Credit Suisse raised its outperformance recommendation, while ams-OSRAM AG fell after unveiling targets that analysts said point to a moderate growth.

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