France’s stock market is experiencing its most significant decline in over two years due to growing concerns that the far-right National Rally party could win the upcoming parliamentary elections. The CAC 40 index has seen a sharp drop, and French bonds have also been heavily impacted.

Key Takeaways

• The CAC 40 index has had its worst week since March 2022, falling over 6%.
• French bonds have been sold off, leading to a rise in yields.
• Finance Minister Bruno Le Maire warns of a potential financial crisis if the far-right or left wins the election.
• Marine Le Pen’s National Rally party is leading in opinion polls.
• The political instability has caused significant market volatility and investor concerns.

Market Reactions

The CAC 40 index, which includes the largest 40 stocks listed in Paris, fell by 2.7% on Friday, culminating in a weekly loss of over 6%. This marks the worst performance for the index since March 2022. French bonds have also been sold off, pushing down prices and increasing yields. The gap between French and German borrowing costs has widened to a seven-year high.

Political Concerns

Finance Minister Bruno Le Maire has expressed concerns that a victory for either the far-right or the left in the upcoming elections could lead to a financial crisis. He specifically criticized the far-right National Rally party, led by Marine Le Pen, for its protectionist economic policies and heavy spending pledges. Le Maire also warned that a new alliance of left-wing parties could cause economic collapse if they gained power.

Investor Sentiment

Investor sentiment has been significantly affected by the political uncertainty. French banks, including BNP Paribas, Credit Agricole, and Societe Generale, have seen their stock values drop between 12-16% this week. The cost of insuring the debt of these banks has also risen to its highest level since the start of the year.

Broader Implications

The political instability in France has had broader implications for European markets. The pan-European STOXX 600 index has also seen declines, and the euro has touched a one-month low. The possibility of a far-right victory has compounded concerns about France’s fiscal discipline, especially given the country’s high debt-to-GDP ratio and recent credit rating downgrade.

Future Outlook

With the first round of voting set to take place on June 30, the political landscape in France remains highly uncertain. Analysts warn that a victory for the National Rally could lead to a financial crisis similar to the one experienced in the UK under Liz Truss. Investors are likely to remain cautious until there is more clarity on the election outcome.

Sources

• French stock market plummets amid fears of far right election win | Stock markets | The Guardian, The Guardian.
• French bonds and bank stocks rocked by political turmoil | Reuters, Reuters.
• Wall St dips and gold surges, capping a tumultuous week | Reuters, Reuters.
• French stocks head for worst week since 2022 over fears of populist election win, Financial Times.