Election drama in France has rocked the country’s stock market and sent ripples across European markets.
CAC-40 – Daily Chart
The CAC-40 index of the top French stocks has fallen 10% from a May high. Friday’s bearish close could see further losses to the 7,278 support level.
Markets are on guard in Europe, with French bonds being sold in favour of other European nations. France’s Finance Minister Bruno Le Maire said the euro zone’s second-biggest economy faced the risk of a financial crisis if Marine Le Pen’s party wins the elections in the coming weeks.
After losing ground in the European votes, French President Emmanuel Macron called a snap election, which he looks on course to lose.
Le Pen’s party wants to lower the retirement age, cut energy prices, increase public spending, and pursue a “France first” economic policy. French banks were hit hard last week, with the three most significant losing around 15% each, the most since the US regional bank crisis in March 2023.
Insurance against the banks was rising in price, and the fear rippled across Italy, with one of the region’s most enormous debt loads. Banking stocks were also sold off.
France’s debt-to-GDP ratio is above 100%, and its deficit is around 5%, which led to a credit rating downgrade last month by the S&P ratings agency. For the first time since at least 2005, the French government is paying more for 10-year borrowing than the Portuguese government.
Macron has also been under pressure with protests due to rising energy and food prices.
“We are at a very serious moment in the history of our country. There are major issues at stake, with wars, and with unprecedented economic challenges,” the President said at the G7 meeting in Italy.
Investors will closely monitor French stocks and bonds over the coming weeks as contagion fears loom.
