France’s stock market has taken a significant hit, with the Cac 40 index, which includes the country’s largest companies, falling by two percent today.
This drop, the steepest since July last year, mirrors the decline seen in Germany’s Dax index, as fears over Europe’s political future grow, particularly with the potential election of Marine Le Pen.
Chris Beauchamp, chief market analyst at IG Group, remarked on the turmoil: “It has been a week to forget for Europe.
“Snap French elections have sent investors scurrying from European stocks, just as those markets began to hit their stride after a decade and more of underperformance versus the US.
“Compared to the prospect of hard-right members sitting in the National Assembly, the UK seems an island of stability, though the FTSE 100 and 250 have not been able to escape the general risk-off move today.”
The possibility of a populist government in France is not only affecting the stock market but also causing a rise in government bond yields.
The yield on France’s 10-year bonds surged to 3.18 percent today, up from 3.15 percent this morning and 3.10 percent at the start of the week.
Analysts are concerned about the widening gap between French and German bond yields, with Germany’s 10-year bonds currently at 2.52 percent, as investors view German debt as increasingly safer.
Chris Attfield, a European rates strategist at HSBC, explained to Bloomberg the potential market repercussions: “A victory for Marine Le Pen’s National Rally could lead to market concerns around fiscal indiscipline and a stand-off with the European Commission.”
He highlighted the risk of further credit rating downgrades.
Last month, S&P Global Ratings downgraded France’s credit score, exacerbating concerns.
French Finance Minister Bruno Le Maire issued a stark warning this week: “If the National Rally goes ahead with its programme … a debt crisis is possible in France, a ‘Liz Truss’ scenario is possible.” His comments underline the potential for severe economic instability if Le Pen’s party gains power.
