French Risk Premium Stays Elevated, UK Inflation Slows to 2%

Bridgette Randall
19 Jun, 2024
Frankfurt

European markets lacked direction in Wednesday's trading, and investors stayed focused on French political developments in the European Union. 

Benchmark indexes in Paris, London, and Frankfurt meandered, and the risk premium on French bonds held steady but elevated ahead of the snap election at the end of the month. 

Investor sentiment has been on edge after the rise of far-right parties in the European Union, and in the upcoming snap election in France, the National Rally Party is likely to win a larger share of the lower house of the parliament. 

National Party leader Jordan Bardella said he will not seek a nomination for prime minister if the party falls short of an outright majority. 

The political turmoil in France comes at a very critical juncture, with the nation's debt hovering above 110% of gross domestic product and the annual government's deficit above 5%, prompting credit rating agencies to warn of a possible debt rating downgrade after the election. 

The spread between the French and German bond yields has shot up above 70 basis points from 49 basis points just a month ago. 

In other economic news in the region, the current account surplus in the Euro widened sharply to €34.4 billion from €5.5 billion a year ago, the European Central Bank reported Wednesday. 

The rise in surplus was largely driven by the sharp jump in international goods trade surplus to €33.1 billion from €6.4 billion, and the service surplus expanded to €11.7 billion from €10.6 billion. 

Meanwhile, the primary income surplus narrowed to €0.5 billion from €0.7 billion. and the secondary income deficit narrowed to €10.9 billion from €12.6 billion. 

The UK's consumer price inflation slowed to the 2% target rate set by the Bank of England for the first time in three years. 

Consumer price inflation slowed to 2.0% in May from 2.3% in April, meeting the widely held expectation of a slowdown, data from the Office for National Statistics showed Wednesday. 

Despite the slowdown in inflation, the Bank of England is not likely to lower its policy rate by 5.25% after its policy meeting on Thursday, the highest since early 2008. 

 

Europe Indexes and Yields

The DAX index decreased by 0.2% to 18,093.15; the CAC-40 index fell by 0.5% to 7,587.53; and the FTSE 100 index declined by 0.01% to 8,182.76. 

The yield on 10-year German bonds edged lower to 2.40%. French bonds inched lower to 3.13%; the UK gilts edged lower to 4.08%; and Italian bonds increased to 3.91%.

The euro edged lower to $1.074; the British pound inched higher to $1.273; and the U.S. dollar weakened to 88.47 Swiss cents.

Brent crude decreased $0.19 to $85.13 a barrel, and the Dutch TTF natural gas rose by €0.19 to €34.48 per MWh.

 

Europe Stock Movers

Vodafone PLC increased 1.6% to 71.80 pence on a report that the wireless telecom is likely to sell its 9.9% stake in the India-based Indus Towers and raise as much as $1.1 billion to repay debt. 

Indus Towers in Mumbai traded down 3.1% to ₹334.0 on possible stake sales as early as this week. 

Games Workshop Group jumped 8.8% to 10,236.39 pence after video game makers estimated higher revenue and earnings in fiscal 2024. 

Annual revenue in the fiscal year is expected to be at least £490 million from £445 million, and pre-tax profit is expected to increase to £220 million from £171 million a year ago. 

Spectris Plc declined 6.5% to 2,998.0 pence after the precision instrumentation and controls group issued a profit warning. 

BNP Paribas decreased 0.3% to €59.28, Societe Generale fell 0.3% to €22.37, and Credit Agricole declined 0.3% to €13.01.