European Markets Extend Weekly Gains to 4%, French Politics In Uncharted Territory

Bridgette Randall
06 Dec, 2024
London

European markets advanced for the seventh session in a row in the hopes that France will soon have a new government. 

Benchmark indexes in Paris, Frankfurt, Milan, and London edged higher in choppy trading, and bond yields hovered near two-year lows. 

Political crisis in France remained the main focus in Europe's trading, and investors for now ignored the possibility of the political turmoil turning into a full-blown financial crisis. 

Deep divisions among three groups of lawmakers sank the minority government for the first time in more than sixty years, leaving the 2025 budget unapproved. 

France's president, Emmanuel Macron, put up a brave face in Thursday's televised comments to the nation, but calls for his resignation are growing louder. 

Macron confirmed that a new special law will be presented in the parliament to avoid a government shutdown and continue the affairs of the government uninterrupted. 

France's budget deficit is likely to cross 6.1% in 2024, and without the approved social security budget and financial budget, the government's deficit is likely to stay elevated, further putting pressure on the euro and denting consumer sentiment and business investment. 

For now, bond markets have been accommodative, but the forgiving attitude can quickly change to punishing sentiment in a matter of days. 

If President Macron fails to appoint a prime minister that could hold the government together till the next summer, market sentiment could deteriorate, driving French bond yields sharply higher.

France's constitution requires a gap of one year after the most recent general elections, which took place on June 30 and July 7. 

 

Germany's Industrial Production Decline Confirms Negative Trend

Closer to home on the economic front, Germany's industrial production in October declined, confirming the long-term trend in place since 2021. 

The seasonally adjusted industrial production in October declined 1% from the previous month, the Federal Statistical Office said Friday. 

The overall production was negatively impacted by an 8.9% fall in energy production and a 1.9% decrease in the automotive sector. 

Manufacturing sector production fell 0.3% from the previous month, driven by a 1% decline in consumer goods and a 0.4% fall in capital goods. 

Construction output was flat compared to the previous month. 

On an annual basis, overall industrial production, which includes manufacturing, energy, and construction sectors, declined 4.5% from a year ago. 

 

Europe Indexes and Yields

The DAX index increased by 0.2% to 20,402.89; the CAC-40 index rose by 1.2% to 7,421.52; and the FTSE 100 index inched lower by 0.01% to 8,348.56.

The yield on 10-year German bonds edged higher to 2.12%, French bonds inched up to 2.87%, the UK gilts increased to 4.28%, and Italian bonds decreased to 3.19%.

The euro edged higher to $1.05; the British pound inched up to $41.27; and the U.S. dollar eased to 87.77 Swiss cents.

Brent crude decreased $0.73 to $71.35 a barrel, and the Dutch TTF natural gas fell by €0.26 to €46.23 per MWh. 

 

Europe Stock Movers

Direct Line Insurance Group PLC soared 7.2% to 252.82 pence after the company said it will recommend a sweetened offer of 3.61 billion or 275 pence per share from Aviva. 

Aviva plc decreased 0.3% to 487.80 pence. 

Berkley Group Holdings declined 2.6% to 4,056.0 pence after the UK-based home builder reported a decline in profit in the first half of the fiscal year. 

French stocks advanced for the third session in a row, amid hopes that France will have a new government in days and not in weeks, following President Macron's televised address. 

Société Générale rebounded 1.4% to €25.98, BNP Paribas rose 1.6% to €58.92, AXA advanced 1.4% to €34.13, and Saint Gobain SA gained 1.6% to €89.30.