London (AFP) – European stock markets and the euro tumbled Tuesday on the prospect of weeks of political uncertainty after far-right gains in EU Parliament elections that sparked early elections in France.
Wall Street was also broadly lower after the S&P 500 and the tech-heavy Nasdaq hit fresh records on Monday as traders waited for US inflation data and the Federal Reserve’s latest monetary policy meeting, both due Wednesday.
French President Emmanuel Macron’s risky gamble of calling new legislative elections, after his centrist party’s rout in the EU elections at the weekend, has focussed attention on the country’s fragile finances.
The prospect of seeing the far-right National Rally strengthen its hand in the French National Assembly, where it is already the largest opposition party, could jeopardise Paris’s pledge to rein in massive debt and deficits worsened by the Covid crisis.
“The European Commission will very likely put France into an Excessive Deficit Procedure next week…France’s public finances have become less sustainable,” said Carsten Brzeski at ING Economics. “Markets will question whether changes to France’s political leadership could lead to more irresponsible fiscal policies and opposition against the European fiscal rules,” he wrote in a research note.
Ratings agency Moody’s has warned that Macron’s move could lower France’s credit score because it raises the risk of “political instability”.
Investors are “carefully assessing the impact of right-wing parties’ success in the European Union and its potential effects on the bloc’s unity”, said Tickmill Group analyst Patrick Munnelly.
The growing spread between French and German government bond yields — a sign of fading confidence in Paris’s fiscal prospects — reached its highest level Tuesday since 2020.
The French 10-year yield — its borrowing cost — stood at 3.24 percent in afternoon trading compared to 2.63 percent for the German note.
In addition, shares in French broadcasters plummeted as speculation grew that a far-right government could privatise France’s state TV group, potentially creating new competition for TF1 (down 7.0 percent at the close) and M6 (down 3.1 percent).
“It would increase competition for advertising in a market that would not be able to absorb the arrival of several new rivals,” analysts at Oddo BHF said in Paris.
In the United States, expectations are growing that the Fed will not be cutting rates as quickly as hoped this year, with jobs and other data pointing to softening growth but still-high inflation.
While decision-makers are expected to keep borrowing costs on hold at Wednesday’s meeting, the inflation numbers could provide clues on when the Fed could start cutting rates.
Several Fed officials have warned they are reluctant to move too soon for fear of restoking inflation, which remains stubbornly above its target of two percent.
“Crucially, do FOMC members expect to reduce rates by 25 or 50 basis points before year-end?” said David Morrison, senior analyst at Trade Nation, referring to the Federal Open Market Committee.
“Fed Chair Jerome Powell will hold a press conference, so market sentiment could shift quickly, depending on his outlook for the US economy, and on inflation in particular,” he added.
In Asia, investors also took a cautious stance after a tepid start to the week in holiday-thinned trade.
– Key figures around 1545 GMT –
New York – Dow Jones: DOWN 0.5 percent at 38,668.09 points
New York – S&P 500: DOWN 0.2 percent at 5,347.79
New York – Nasdaq: UP 0.2 percent at 17,151.03
London – FTSE 100: DOWN 1.0 percent at 8,147.81 (close)
Paris – CAC 40: DOWN 1.3 percent at 7,789.21 (close)
Frankfurt – DAX: DOWN 0.7 percent at 18,369.94 (close)
EURO STOXX 50: DOWN 1.0 percent at 4,965.09 (close)
Tokyo – Nikkei 225: UP 0.3 percent at 39,134.79 (close)
Hong Kong – Hang Seng Index: DOWN 1.0 percent at 18,176.34 (close)
Shanghai – Composite: DOWN 0.8 percent at 3,028.05 (close)
Euro/dollar: DOWN at $1.0731 from $1.0767 on Monday
Euro/pound: DOWN at 84.33 pence from 84.54 pence
Pound/dollar: DOWN at $1.2724 from $1.2732
Dollar/yen: UP at 157.34 yen from 157.04 yen
West Texas Intermediate: UP 0.1 percent at $77.79 per barrel
Brent North Sea Crude: UP 0.1 percent at $81.76 per barrel
© 2024 AFP
