(BFM Bourse) – The CAC 40 dropped nearly 2.7% this Friday, the market still being seized up by the uncertainty caused by the dissolution of the National Assembly.
“The markets are panicking.” This is the observation made by Emmanuel Macron on Wednesday when he spoke following his decision to dissolve the National Assembly. Investors have, of course, not completely capitulated. But the market, which inherently hates political uncertainty, was indeed frightened throughout the week.
This Friday in particular. The CAC 40 dropped 2.66%, suffering by far its biggest decline of the year in one session, reaching 7,503.27 points. Over the week as a whole, the index dropped 6.2%. This is the worst week on the CAC 40 since that ended on March 4, 2022 when it dropped more than 10%, following the outbreak of the war in Ukraine.
Now, the index has erased all of its 2024 gains. Since January 1, the CAC 40 has now lost 0.53%.
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Rush on German debt
The risk linked to French policy therefore weighed on all European markets, and on the Paris Stock Exchange in addition.
“The possibility that parties often representing the extremes, and without experience of government, could take the reins of the country raises concern,” underlines Sebastian Paris Horviz, research director of LBPAM.
The market fears that populist groups, such as the National Rally, will implement policies that would weaken France’s already shaky public finances.
In an Elabe poll for BFMTV and La Tribune Dimanche published Tuesday, the National Rally gleaned the strongest voting intentions (31%) ahead of the alliance of left-wing and ecological parties (28%). Renaissance, the party of the presidential majority, came far behind (18%).
“Faced with growing uncertainty in the European Union’s second-largest economy, investors are seeking security and temporarily tempering their allocation to stocks in the region,” explains Pierre Veyret, technical analyst at Activtrades.
This risk aversion pushes investors to rush into assets deemed safe, such as bonds, and especially German debt securities. The yield on the German 10-year bond lost 11.5 basis points (0.11 percentage points) to 2.361% while it was well above 2.60% last week.
Banks still struggling
Paradoxically, French debt also benefits from this movement. The 10-year French bond rate lost 6 basis points to 3.116% and returned quite close to its level before the dissolution (3.103%).
But as the German bond declines further, the gap between the rates of the two 10-year debt securities continues to widen. This difference, called “spread”, measures the stress in a particular country. It is currently around 73 basis points between France and Germany. According to Reuters it even exceeded 80 basis points during the day.
“We could quite easily see the spread between France and Germany exceed 80 basis points within a few weeks, a level already reached at the end of the crisis (of the sovereign debt of the peripheral countries of the euro zone, Editor’s note) then during the 2017 elections. We are rather aiming for 100 basis points,” explains Matthieu Bailly, CEO of Octo AM. Capital Economics for its part “suspects that a gap of 100 basis points will become the new normal”.
On the value side, almost the entire CAC 40 (except Dassault Systemes) finished in the red this Friday, with Thales (-6.7%) and Axa (-4.9%) at the back of the pack. Banks suffered further, with Société Générale losing 3.57%, Crédit Agricole SA 2.98% and BNP Paribas 2.65%.
On other markets, the euro fell by another 0.5% against the dollar, to 1.0688 dollars. Oil is gaining some ground. The North Sea Brent contract gained 0.4% to $83.09 per barrel, while the July contract for New York-listed WTI gained 0.2% to $78.79 per barrel.
Julien Marion – ©2024 BFM Bourse