The control room of Euronext, the company that manages the Paris Stock Exchange (AFP/Archives/ERIC PIERMONT)
The Paris Stock Exchange signed its worst week since March 2022 on Friday, at the time of the Russian invasion in Ukraine, and saw all its cumulative gains since January 1 evaporate, bending in the face of the political risk which crosses the French markets.
The flagship CAC 40 index ended down 2.66% on Friday, at 7,503.27 points, after dropping more than 3% during the session. Over the week, the index fell 6.23%. To find its previous worst weekly decline, we must go back to the week of February 28 to March 4, 2022, at the start of the Russian invasion in Ukraine.
Since January 1, the CAC 40 is now down 0.53%. The French index is the only one in Europe to be in negative territory in terms of its performance since the start of the year. In comparison, the Milan and Frankfurt Stock Exchanges gained more than 7%, while London gained more than 5%.
“The presentation of the New Popular Front program on Friday accentuated the fall in the stock market and put pressure on the bond market,” commented Alexandre Baradez, head of market analysis at IG France.
“The tax aspect mainly causes stocks to react and the budgetary aspect causes the sovereign bond market to react,” detailed the analyst.
“We see that the left bloc which was put in place, more quickly than expected, has unpleasantly surprised the markets because in the first line of the program a fiscal component seems quite important, including for example the restoration of the ISF” (solidarity tax on wealth), explained Alexandre Baradez.
The legislative elections of June 30 and July 7 could lead to the entry into government of the National Rally, or of members of the left-wing New Popular Front alliance. But the political programs of these two camps are not likely to please the markets between tax cuts on the far right and repeal of pension reform on the left.
A common point is identified by analysts: the risk of an increase in French budget deficits, “at a time when the deficit is high and the State’s borrowing rate has already increased”, noted Sylvain Bersinger, analyst of Asteres.
Another factor which is driving the index downward is the growing gap between the interest rate on ten-year French OATs (equivalent Treasury bonds), which stands at 3.12%, and its German equivalent, which fell more sharply, to 2.35%.
The difference between these two rates – or “spread” – is an indicator for measuring investor confidence in France and its long-term economic prospects. It stood at 0.76 percentage points on Friday.
According to Bloomberg, the amplification of this gap over the week is at this stage the most significant since 2011, at the time of the debt crisis of the Eurozone states.
“This gap shows us the degree of distrust vis-à-vis French debt compared to German debt”, but “the more this gap widens, the more the stock market falls”, underlined Alexandre Baradez.
On the foreign exchange market around 6:00 p.m., the euro fell by 0.36% against the dollar, to 1.0698 dollars per euro. The single European currency has lost 0.95% against the greenback since Monday.
The automotive sector penalized
The European automotive sector fell again on Friday, still suffering from the European Commission’s desire to impose from July 4 up to 38% additional customs duties on imports of Chinese electric vehicles into the EU, in a context where Beijing is accused of having illegally favored Chinese manufacturers.
Renault shares fell 3% to 48.14 euros. Over the week, the value of this share lost 6.01%.
Stellantis fell 4.39%, to 18.81 euros, and saw its weekly balance sheet fall by 6.83%.
© 2024 AFP
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