French stocks this week lost roughly $220 billion in market capitalization, about the size of Greece’s economy, following President Emmanuel Macron’s decision to call a snap election. The CAC 40 index dropped 3%, erasing all gains for 2024.
That’s weighed on the pan-European Stoxx 600 benchmark, which is set for the worst week since October. The index fell 1.1% on Friday by 3:20 p.m. in London, with autos and industrials the biggest sector laggards. Defensive sectors such as health care and consumer staples outperformed. France’s CAC 40 extended its losses, heading for its steepest weekly slump since March 2022.
Defense firms declined ahead of a Swiss-hosted Ukraine peace summit this weekend and as Reuters reports that China is pushing a rival peace plan, while banks were poised for the worst weekly decline since March 2023, with French lenders dropping more than 10% in the week.
The main European regional index is heading for its biggest weekly divergence from the S&P 500 since the 2023 banking turmoil.
“Political uncertainty is going to keep setting the trend in European markets, at least in the short term,” said Thomas Nugent, equities portfolio manager at Mapfre AM. The Spanish asset manager has increased its equity exposure on the expectation corporates will have a better second half of the year than the first.
Concerns that Marine Le Pen’s far-right National Rally party may usher in looser fiscal policies if it wins legislative elections have fueled a decline in French bonds, which tumbled, driving yields over safer German peers to the highest level in seven years. On Friday, Finance Minister Bruno Le Maire warned that victory by a new left-wing alliance would lead to the country’s exit from the European Union.
Trading patterns in Euro Stoxx 50 Futures have changed during the current drawdown from the May peak. While the first half of the recent pullback saw below average turnover, trading size has picked up in June, with political events most likely sparking a higher demand of hedging and de-allocation of risk via futures. With futures quickly moving from gains to losses in early Friday trading, it suggests investors behavior is changing from “buy the dip’ to “sell the bounce.”
“Macron’s gamble on new elections could go badly wrong after the left-wing parties agreed to unite, which would undermine strongly Macron’s centrist alliance,” said Uwe Maderer, head of fixed income at LBBW Asset Management. “They could be nearly wiped out in the election in a worst case scenario. Much of the market pricing is still totally benign in terms of spreads, volatility and interest rate curves.”
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With assistance from Farah Elbahrawy, Sagarika Jaisinghani and Michael Msika.
This article was generated from an automated news agency feed without modifications to text.
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Published: 15 Jun 2024, 12:11 AM IST