European Markets Extend Weekly Losses, French Bond Risk Premium Soares to a 4-year High

Bridgette Randall
14 Jun, 2024
Frankfurt

Rising political uncertainty in France weighed on bonds and stocks in the eurozone for the fifth day in a row. 

Benchmark indexes in Paris plunged more than 2% and led the decliners in the region, followed by a 1% loss in Frankfurt and a 0.5% decline in London. 

Political realignment and negotiation rose to a dizzying pace in Paris, and a once unthinkable alliance among far-left parties knocked another blow to President Emmanuel Macron's prospect of keeping the lower house of parliament divided. 

The Socialists, the far-left La France Insoumise, the Greens, and the Communists agreed on a common election platform and a distribution of seats, which is likely to enhance their share of votes at the upcoming election on June 30. 

Conservative and far-right parties are still divided, and they are likely to run their campaigns as independent parties, which could reduce their chances of winning a larger share of votes. 

All parties are required to submit their candidate lists by June 16. 

Market anxieties were visible in the spread between the French and German bond yields, which rose to 81 basis points from 48 points last week after the credit rating agency S&P Global indicated that it may review the French government bond's long-term credit rating if far-right parties win control of the legislative chamber. 

Prior to the European Union elections on June 9, S&P Global lowered its debt rating for France down to AA from AA, indicating that the government's debt is likely to stay above 3% of gross domestic product in 2027. 

After the downgrade, France's debt rating was on par with the ratings for the Czech Republic and Estonia.

 

Eurozone Trade Balance Swings to Surplus in April

The eurozone trade surplus rose to a surplus of €15 billion in April from a gap of €11 billion in the same month a year ago, Eurostat reported Friday. 

Exports increased 14% from a year ago to 247.6 billion, and imports advanced 1.8% to €232.5 billion. 

In January to April, the Euro Area trade surplus was €72.8 billion, compared to a deficit of €20.5 billion, after imports of chemicals and energy declined but exports of machinery and vehicles, food and drinks, and specialty chemicals advanced. 

 

Europe Indexes and Yields

The DAX index decreased by 1.2% to 18,043.91; the CAC-40 index fell by 2.3% to 7,531.21; and the FTSE 100 index declined by 0.5% to 8,124.45. 

For the week, the CAC - 40 declined 4.3%, the DAX index dropped 2.4%, and the FTSE 100 index decreased 1.0%. 

The yield on 10-year German bonds edged lower to 2.36%. French bonds inched lower to 3.17%; the UK gilts edged lower to 4.05%; and Italian bonds decreased to 3.96%.

The euro edged lower to $1.069; the British pound inched higher to $1.273; and the U.S. dollar weakened to 89.32 Swiss cents.

Brent crude increased $0.12 to $82.87 a barrel, and the Dutch TTF natural gas rose by €0.24 to €35.57 per MWh.

 

Europe Stock Movers

French banks and insurance service providers declined for the third day in a row, amid the rising possibility of extreme parties on the right and left gaining a larger share of seats in parliament. 

Societe Generale declined 5.3% to €21.76, Credit Agricole dropped 4.5% to €12.83, and BNP Paribas fell €57.60. 

Casino Guicahrd dropped 3.3% to €3.30 after the retailer said it entered into exclusive negotiations with Auchan Retail France and Rocca regarding the sale of its Corsican subsidiary, Codim 2. 

Crest Nicholson Holdings soared 11.5% to 237.40 pence after the homebuilder rejected the second all-cash offer from its larger competitor, Bellway. 

Tesco plc increased 2.7% to 310.50 pence after the company reported a rise in its retail grocery sales operation. 

Revenue in retail operations increased by 3.4% on a comparable basis to £15.3 billion in the first three months of the fiscal year. 

The global retail sales increase was driven by a better-than-expected sales increase of 4.4% in Ireland to £731 million and a UK sales increase of 4.6% to £11.3 billion. 

Sales at the company's wholesale division, Booker, declined 1.3% to £2.23 billion, due to the weakness in tobacco sales and the tough comparison from the previous year. 

The retailer reiterated its annual adjusted operating profit outlook to £2.8 billion and free cash flow range between £1.4 billion and £1.8 billion.