Nervousness, uncertainty and worry gripped the Paris financial center this Monday the day after the victory of the National Rally in the European elections and Emmanuel Macron’s announcement of the dissolution of the National Assembly. The Paris Stock Exchange fell 1.88% in early trading. If this decline affects the majority of European markets, it is much more marked in France: Frankfurt lost 0.68%, Milan 0.80%, Brussels 0.91%, Amsterdam 0.42% and Stockholm 0.68 %. Overall, the pan-European Stoxx 600 index fell 0.65% around 9 a.m. The flagship French CAC 40 index which brings together the 40 largest capitalizations fell by 150.75 points to 7,851.05 points. We are a long way from March 7 when the CAC40 exceeded 8,000 points for the first time in its history.
It is the banking sector which is most penalized by this context of uncertainties: Société Générale fell by 5.19% to 24.66 euros, BNP Paribas by 4.82% to 63.12 euros and Crédit Agricole by 3 .69% at 14.10 euros. Next come the companies whose income depends on concession contracts signed with the State: Eiffage experienced a drop of 5.76% to 93.90 euros and Vinci by 3.88% to 106.45 euros. The Paris airports manager ADP also fell 4.29% to 122.60 euros. Ditto for European energy sector stocks due to the rise of the far right in Europe. Thus, the shares of the wind turbine manufacturer Nordex fell by 1.5%. The Dax RWE group and the solar energy specialist SMA were also affected with declines of 1.1% and 1.2% respectively.
If Emmanuel Macron with his dissolution hopes to clarify the political situation in France, analysts are rather pessimistic about the possibility of the President of the Republic regaining a majority. “Obtaining this majority should not be easy, because Macron’s party seems weakened,” said Raphaël Brun-Aguerre, expert at JPMorgan, in the morning.
Another consequence: the euro fell sharply against the dollar this Monday morning. Around 9:40 a.m., it fell 0.5% against the greenback to $1.0758. Due to uncertainty over the election results in France, pressure on the single currency is expected to continue at least until the results on July 7.
Investors increase their risk premium in France
But above all there is a very bad signal already sent to Paris by investors. Thus, the bond market, where France borrows to partly finance its debt, has seen its interest rate rise. On ten-year loans, the rate rose to 3.16% compared to 3.1% at Friday’s close.
Basically, this means that investors have less and less confidence in France in the future to repay its debt. They already believe that certain lines of the National Rally program such as tax cuts by reducing VAT on energy, for example, do not really go towards cleaning up public finances. Especially since this comes after the downgrading of France’s rating by S&P Global Ratings which was already a bad sign. So much so that the difference in rates with Germany, whose debt is considered the safest in the euro zone, rose sharply by 5 points in the morning to reach 53 points, its highest since January 10.