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French stocks are heading for their worst week since September 2022 as the prospect of a far-right government rattles European financial markets.
The Cac 40 index in Paris has plunged more than 5 per cent in the five trading sessions since President Emmanuel Macron’s shock decision on Sunday to call snap elections, in which Marine Le Pen’s Rassemblement National is expected to make significant gains.
Investors have been fretting over RN’s big-spending plans, with finance minister Bruno Le Maire this week warning that a far-right victory could lead to a “debt crisis” akin to the UK’s gilt market turmoil under former prime minister Liz Truss.
Macron’s move has reverberated beyond the French equity market. The euro has fallen against the dollar, while the region-wide Stoxx 600 index is on track for its worst week since October last year, with German, Italian and Spanish stock indices all having lost ground. In marked contrast, Wall Street’s S&P 500 index has added 1.6 per cent this week.
Barclays, which for months had been recommending clients have a higher than benchmark weighting in European equities relative to the US, scaled back its position on Wednesday, advising “caution on the region for now given the political situation in France”.
French government bonds have also been hit. The gap between benchmark French and German yields — a market barometer for the risk of holding France’s debt — rose to 0.77 percentage points in early trading on Friday, according to LSEG data, the highest level since 2017.
The shift follows new projections suggesting only about 40 of Macron’s MPs would qualify for the second-round vote on July 7, with most of the 589-strong assembly looking poised to be a battle between France’s far-right and leftwing blocs.
Concerns about French markets “range from a stalling of the reform process, possible rating downgrades, to increasing concerns over talk of a break-up in the euro area”, said Mohit Kumar, chief economist for Europe at Jefferies.
