London (AFP) – The euro slid Monday to the lowest level against the dollar in 17 months on worries about France’s high debt and deficits, which have sent its government bond yields soaring. Equities traded broadly higher despite the pressure of high bond yields, while oil prices pushed higher.
The euro’s slide follows an underwhelming 2027 budget plan unveiled last week, which fanned concerns that French government spending will remain high ahead of next year’s presidential elections. In this context, the far-right Marine Le Pen, seen as a fiscal populist, stands a chance of winning. This situation has rattled bond investors at a time when interest rates — and hence borrowing costs — are rising in developed economies worldwide to combat inflation. French debt is projected to rise to nearly 122 percent of the country’s GDP next year, despite billions of euros in planned spending cuts. That has sent its 10-year government bond yield to 4.8 percent, the highest since the 2011 eurozone bond crisis.
“The fact that French bonds and the euro sold off last week, and the downward momentum could persist this week, is a sign that Europe is out of favour with investors and bond market vigilantes are watching developments in the eurozone closely,” said Kathleen Brooks, research director at XTB. A call for snap elections in Spain by Prime Minister Pedro Sanchez also surprised investors, after lawmakers rejected a hotly debated housing relief bill from his Socialist-led minority government.
“France had already been under pressure due to questions over fiscal credibility and political stability,” said Patrick Munnelly, market strategist at Tickmill Group. “Spain now adds another layer of uncertainty,” he added. “Europe’s political risk is weighing on the euro.”
Stocks meanwhile were broadly higher, with the Nasdaq rising after hitting another all-time high on Friday in the wake of weak US jobs data. That tempered expectations of an imminent rate hike by the Federal Reserve and fueled optimism on equity markets that the AI-fueled rally still has room to run. Some analysts have begun to worry that the gains in the market are being driven by an increasingly narrow slice of stocks. “The market appears increasingly fragile, but we are only eight days away from what many view as the official start of earnings season when many of the big banks report,” said Justin Bergner of Gabelli Funds.
Paris was dragged lower on worries about bond yields as well as a nearly 10 percent drop in Schneider Electric shares after the company unveiled a $22.6 billion all-cash deal to buy the US engineering software specialist PTC. Oil prices, which had slid after G7 countries, in coordination with the International Energy Agency, agreed Friday to immediately release 100 million barrels of diesel and crude oil to ease supply concerns caused by the US-Iran war, turned higher.
However, Saudi Aramco chief executive Amin Nasser on Monday described oil stockpiles as “scarily thin” as the European winter looms. Exports of Middle East oil, excluding Iran, surpassed their pre-war levels last week, despite attacks on ships in the Strait of Hormuz, according to data from the maritime tracking firm Kpler. However, supplies of some products like diesel remain tight due to refineries damaged during the conflict in the Middle East as well as Ukrainian strikes on Russian energy facilities.
**Key figures at around 1530 GMT**
New York – Dow: DOWN less than 0.1 percent at 51,136.19 points
New York – S&P 500: UP 0.5 percent at 7,759.01
New York – Nasdaq: UP 0.7 percent at 27,393.19
London – FTSE 100: UP 0.3 percent at 10,497.94 (close)
Paris – CAC 40: DOWN 0.9 percent at 7,824.28 (close)
Frankfurt – DAX: UP less than 0.1 percent at 25,254.21 (close)
Tokyo – Nikkei 225: UP 2.4 percent at 69,946.86 (close)
Hong Kong – Hang Seng Index: UP 0.3 percent at 24,040.34 (close)
Shanghai – Composite: Closed for a holiday
Euro/dollar: DOWN at $1.1215 from $1.1256 on Friday
Dollar/yen: UP at 158.02 yen from 157.87 yen
Pound/dollar: DOWN at $1.3222 from $1.3244
Euro/pound: DOWN at 84.81 pence from 84.99 pence
Brent North Sea Crude: UP 0.3 percent at $102.51 per barrel
West Texas Intermediate: UP 0.2 percent at $91.25 per barrel
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© 2024 AFP
