DAX Index Scales New Highs as Investors Overlook Rising Political Instability, French Government Faces No-Confidence Vote

Bridgette Randall
04 Dec, 2024
London

European markets braved higher despite the growing uncertainty about France's ability to lower its budget deficit to meet the target set by the European Union. 

Benchmark indexes in Frankfurt, Paris, and Milan headed higher, but in London edged lower. 

The French parliament is set to vote on a no-confidence vote later today, which could see the ouster of the minority government headed by Michel Barnier, adding more pressure on the euro. 

National Rally, the largest party in the French parliament, is demanding changes in the social security budget that could prevent the government from meeting its goal of lowering the budget deficit to 5% of GDP in 2025. 

However, with the possible fall of the government, French administration will not be able to pay civil servants, bills, and suppliers after December 31. 

On Monday, Prime Minister Michel Barnier forced the social security bill without a vote in the parliament, following a compromise reached by ministers and senators on Friday, triggering two requests for a no-confidence vote on Wednesday. 

At the heart of the French political disarray is the sharp division among political parties, with no one party holding enough votes to lead the nation. 

This political division is unlikely to change even after the next general election in the summer of 2025, as three main parties struggle to attract enough votes to command a majority in the parliament. 

Moreover, Germany is undergoing its version of political turmoil, and the next general election on February 23, 2025, is unlikely to produce a party or a coalition with a stable majority to govern the nation. 

So far, financial markets have overlooked the brewing political division, but the sharp escalation in budget deficits and government borrowing in the months ahead will pressure the euro in the near future. 

On the economic front, private sector activities in Italy fell back into contraction territory, and in Spain growth slowed to a 10-month low in November. 

The HCOB Italy Composite PMI fell to 47.7 from 51.0, and the index for Spain eased to 53.2 from 55.2 in October, respectively, according to S&P Global. 

 

Europe Indexes and Yields

The DAX index increased by 0.8% to 20,144.86; the CAC-40 index rose by 0.2% to 7,270.31; and the FTSE 100 index inched lower by 0.3% to 8,332.74.

The yield on 10-year German bonds edged higher to 2.08%, French bonds inched up to 2.92%, the UK gilts edged higher to 4.27%, and Italian bonds increased to 3.26%.

The euro edged higher to $1.05; the British pound inched down to $1.26; and the U.S. dollar eased to 88.86 Swiss cents.

Brent crude increased $0.25 to $73.90 a barrel, and the Dutch TTF natural gas fell by €0.80 to €47.62 per MWh. 

 

Europe Stock Movers

Leading European automobile companies traded higher, and banks in Paris extended losses for the second consecutive week. 

Mercedes-Benz Group increased 2.2% to €53.13, Volkswagen AG advanced 1.8% to €84.60, and Renault SA jumped 4.7% to €41.56. 

France's Renault is going ahead with its plans to expand its electric vehicle production in China. 

BNP Paribas SA gained 1% to €56.30, Societe Generale added 0.9%, Credit Agricole advanced 1.4% to €12.69, and AXA SA increased 1.1% to €32.65. 

Monk Investment Trust PLC gained 0.9% to 1,289.04 pence after the organization reported a net asset value increase. 

Zigup PLC plunged 9% to 348.50 pence after the vehicle rental company reported mixed financial results in the first half.