Investors anxiously await the reaction of the markets, especially Frances, tomorrow, Monday, June 17 after a “black” week following the collapse of the president’s party Macron in the European elections on June 9, 2024.
Risk premiums for French government bonds, after the defeat of the French president, Macron, and the announcement of early parliamentary elections, increased more strongly than in 2011, while the debt crisis in the eurozone is feared. At the same time, bank share prices fell by 12% – 15%.
The stock market as a whole suffered its biggest weekly loss in more than two years. Macron’s election bet has also given Europe’s dreams about Brexit, Handelsblatt points out.
The prospect of a far-right government in France is causing continued uncertainty among investors. Last Sunday, June 9, French President Emmanuel Macron announced new elections for the National Assembly. He was reacting to the poor performance of his alliance in European elections. Today’s markets are in turmoil.
Investors fear that if the right-wing nationalist party Rassemblement National (RN) comes to power, France’s already high debt levels will continue to rise.
The RN under Marine Le Pen calls for, among other things, a lowering of the retirement age and a more protective economic policy. Concerns are particularly evident in the bond market.
The risk premium on 10-year French government bonds rose 0.3 percentage points after Macron’s announcement. That doesn’t sound like much at first. But it was the biggest weekly increase since the euro crisis in 2011.
The risk premium is the yield premium that investors demand compared to German government bonds, which are considered the safest fixed-income securities in the eurozone.
Risk premium at seven-year high
Bond prices rose again on Friday. In contrast, the yield on ten-year French government bonds fell to 3.11%. However, German government bond yields fell sharply. As a result, the risk premium increased by 0.77 percentage points and reached the highest level in more than seven years.
Concerns have spread to other eurozone countries. Yields on Spain’s 10-year government bonds rose by 0.2 to 0.92 percentage points since Monday, while those in Italy, which is heavily indebted, rose by 0.24 to 1.57 percentage points. The French finance minister, Bruno Le Maire, has already warned of a financial crisis in France in an interview on French radio.
However, investors don’t go that far. For example, Mark Dowding, chief investment strategist at Blue Bay Asset Management, believes that the risk premium will stabilize at 0.7 percentage points at the end of the month. If the RN wins, Dowding expects it to rise by 0.85 percentage points.
Peter Goves, head of industrialized sovereign bond research at MFS Investment Management, also said: “France remains a highly rated debtor with strong institutions and an EU-friendly leader. in the state.” He also believes that the fact that there is no “anti-euro rhetoric” even from the RN speaks against a large increase in spreads.
However, uncertainty is also felt in the French stock market. France’s top index, the CAC 40, fell more than six percent since Monday and posted its biggest weekly loss since March 2022, trailing the DAX, which fell “only” three percent at its close. of the week.
Big loss for French banking stocks
French banks are under particular pressure. The share prices of Crédit Agricole, BNP Paribas and Société Générale lost between 12% and 15% of their value during the week. Marc Decker, co-head of equities at private bank Quintet, which also owns Merck Finck in Germany, explains it this way: “French banks own a lot of French government bonds . Therefore, increased risk premiums are reflected in their balance sheets.
In general, however, Decker is not very bullish on French stocks, explaining: “The companies are located all over the world, so the development of the global economy is more important to them than of political developments in France.” However, the coming weeks will be a bumpy road, although buying opportunities may re-emerge.