Faced with political risk in France, Cac 40 is experiencing its worst week since the start of the war in Ukraine

By deciding to dissolve the National Assembly, Emmanuel Macron sowed political chaos in France and sent the Paris stock market crashing. Investors abandoned French and even European stocks and bonds in favor of dollar assets. Many are at a loss for words to describe the collapse they are witnessing on the old continent and which is likely to continue in the coming days. One thing is certain: the week that ends will remain marked by a black stone. In five days, the Cac 40 fell 6.23%, its worst underperformance since the week ending March 4 (-10.2%), just after Russia’s invasion of Ukraine. At 7,503.27 points on the eve of the weekend, the flagship index returned almost five months, erasing its total gains for the year. It has lost more than 9% since the May 10 all-time high of 8,259.19 points. The selling wave therefore flooded the big European markets, for example Milan fell by 5.8% and Frankfurt by 2.82%.

“Economic Disaster”

We are likely to see such volatility and destabilization at least until July 7, the date of the second round of early parliamentary elections in France. This method of voting, different from the proportional system of the Europeans, is also questioned by the American investment bank Morgan Stanley. According to her, it makes predictability of results more difficult and increases the risk of shock for companies most sensitive to political changes before the final results are announced.

Polls so far show the National Rally, led by Marine Le Pen and Jordan Bardella, with a wide lead, with 32% of voting intentions, compared to 25% for the New Popular Front and 19% for the Presidential Majority (OpinionWay poll). A good score for the far-right party, with the possibility of one of its representatives leaving Matignon, could generate ” economic disaster » in France, says Frederik Ducrozet of Pictet Wealth Management. ” Many of Marine Le Pen’s measures would be inflationary (…) and would pose a great risk to businesses and to France’s rating. “. A point highlighted by Moody’s, whose “Aa2” rating is only one notch higher than Fitch and S&P ratings. The victory for the Left Alliance is also not reassuring.

The rate difference is widening between Paris and Berlin

Enough to panic in the bond market, moreover in the stock market. From Monday, spreading (gap rate) between France’s 10-year OAT and its German equivalent tightened to 84 basis points on Friday, compared to hovering around 50 basis points before the election. If we are still far from the peak of 130 basis points in 2012 in the midst of the Eurozone debt crisis, there is nothing to say that this will not be achieved in the coming days or weeks. On Friday evening, the French 10-year OAT yielded 3.174%, its German equivalent 2.5%. For another comparison, the Portuguese rate is 3.136% and the Greek rate is 3.648%. A surge that worries Bercy: Economy Minister Bruno Le Maire has warned of the risk of a financial crisis in France if the union of the left or the extreme right wins. Finally, on the foreign exchange market, the euro is weakened by the chaotic situation in France, falling again by 0.5% to $1.0687.

Banks, the big losers of the week

With stocks falling and then spreads exploding, French banks found themselves on the front lines of the domino theory. Société Générale lost 14.87% of its value in five days, BNP Paribas lost 11.99% and Crédit Agricole 10.96%. A total of 10 of the 40 Cac 40 stocks fell by more than 10% and 27 by more than 5% during the week!

Far from the storms of French political life (from which he profits!), Wall Street is jubilant. On Thursday, the S&P 500 and the Nasdaq Composite set closing records for the fourth straight session, boosted, wink, by easing rates, good results from Oracle and Broadcom or the introduction of a new Apple system called Apple. Intelligence. Both indexes are on track to end the week with gains of 1.3% and 3%.

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