Stock market: what to do after the dissolution of the National Assembly and the European elections?

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The dissolution of the National Assembly, the shock of the European elections… What impact will the recent political events in France and the old continent have for the Paris Stock Exchange (CAC 40)?

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– A decline in shares on the stock market

follow her Emmanuel Macron’s press conference after the dissolution of the National Assembly with capital.

The CAC 40 is experiencing a bout of volatility at the start of the week. The rise of the far right during European elections and Emmanuel Macron’s surprise announcement to dissolve the National Assembly weighed on the Paris stock market on Monday. French banks (BNP Paribas, Crédit Agricole and Société Générale), sensitive to the heightened economic concerns caused by the events, were particularly in the stock market, as were other sectors considered the most vulnerable in this new, more uncertain context. . , as is the case with concessions (Eiffage, Vinci, ADP), companies in this sector are contractually linked to the state for a significant part of their turnover.

Is the stock market correction that started on Monday likely to continue? Asked by Capital, Christopher Dembik, an investment strategy adviser at Geneva-based Pictet Asset Management, remains cautious about the expected impact of recent events on the stock market. “IThe influence of politics on financial markets in developed countries should not be exaggerated. We can clearly see that the euro has fallen a bit against the dollar, while the rate difference between France and Germany (which measures the evolution of perceived risk in France) has widened a bit, but it’s nothing catastrophic», judges the strategist. “It is quite logical, because the surprise effect associated with the announcement of early parliamentary elections will not last“, according to him.

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Also read: CAC 40: what risks threaten the stock market in 2024?

The RN government will not change the trajectory of French economic growth, according to Pictet AM

Foreign investorsthey are not worried about (probable, ed.) coexistence, the principle of which they rarely understand. They are primarily concerned that the trajectory of French public debt is sustainable and that the business climate in France remains favorable, which will not change with the RN government. An important point: in developed countries, it is a mistake to believe that investors, especially foreign ones, position themselves ideologically. They are looking for performance, stability, a favorable business climate. This can be found in the Meloni government as in Sanchez or potentially the RN», estimates the expert, who, however, clarifies that the situation is different in developing countries.

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Risk of chaotic development on the stock market in the short term

LBP AM considers that if the results of the European elections should not really change the balance of political forces in the European Parliament, the rise of the extreme right, especially in the great powers of the European Union, nevertheless represents a significant event. . “In Germany, the Afd (Alternative für Deutschland, extreme right-wing party beyond the Rhine, editor’s note) is advancing significantly, having achieved 16% of the vote. But in France in particular, the far right achieved a historic result, gaining more than 36% of the vote.», notes asset manager La Banque Postale.

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Emmanuel Macron thus decided to dissolve the National Assembly and called parliamentary elections in the coming weeks. These risks could favor a more chaotic course of financial markets (stock market and rates) this month, according to LBP AM. “The uncertainty of the far right coming to power in France could be put into perspective with the policy that Mrs. Meloni is promoting in Italy (which has far from affected the Italian economic growth and the Milan Stock Exchange, on the contrary, Editor’s note), but at this stage Mrs. Meloni’s actions seems quite far from the proposals of the French extreme right (more aggressive, editor’s note)», however, recalls the asset manager.

Also read: CAC 40: principle, calculation and composition

The development of the French long-term rate should be monitored

Richelieu Group, in turn, questions the possible return of political risk in Europe. The calling of early parliamentary elections in France raises political risk in Europe and opens a period of uncertainty until the evening of the second round, July 7, 2024. In the short term, European stocks, and French stocks in particular, risk suffering, worries a financial institution that advises stock investors to were mocked on the Paris Stock Exchange and the Eurozone Stock Exchange.

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It will be necessary to monitor the development of the 10-year rate of France and the gap to the German government bond of the same maturity. A potential widening of this gap would indeed encourage a resumption of caution in PSE and CAC 40 stocks. In this respect, from a technical analysis perspective only, the recent break above the 3.19% graphic barrier could favor an uptrend to a bullish slant connecting peaks from February and April (which is currently headed for 3.27%), judges Robert Haddad of SBA Bank.

Bloomberg Finance

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