French shares sold off on Monday after France’s Prime Minister resigned after less than a month.
FRA 40 – Daily Chart
The FRA 40 index has been testing a cluster of resistance around the 8,000 level since May. The latest attempt to move onto new highs has now failed, and that could bring further correction risk.
France has been caught in a period of turmoil due to the fact that the President has seen continued failures with his Prime Ministerial picks.
Hours after he quit. Sebastian Lecornu accepted a request from President Emmanuel Macron to work on a plan for the “stability for the country” by Wednesday night. The latest twist came after a day of upheaval, which saw stocks experience a sharp drop in stocks due to concerns over the ability of the political parties to solve the country’s economic problems.
Lecornu’s shock resignation came only a day after he unveiled his cabinet, and he is now the third French PM to leave office in less than a year.
The parties conflict over the country’s budget, and recent attempts to promote an austerity plan have led to pushback. There are now further calls for Macron to step down and allow the country to move forward on a new path. There are calls for early elections, but Macron is adamant that he will not leave before his term ends in 2027.
But analysts have said that he has three options if the latest plan fails: If Lecornu’s bid to achieve “stability” by Wednesday fails, Macron has three options:
Appoint another prime minister (more of the same), dissolve the National Assembly, or resign.
The key point in all of this upheaval is that French stocks should exhibit a greater risk premium compared to those of other nations. Increases in the bond spreads between France and Germany may lead to a further correction in the FRA 40.
