Eurozone Business Activities Remain In Contraction, Only Moody's Cut France's Debt Rating

Bridgette Randall
16 Dec, 2024
London

European markets struggled to stay above the flatline, and France's credit rating was downgraded. 

Benchmark indexes in Paris extended the previous week's losses after Moody's Investors Service lowered its rating on French government debt by one notch, citing political instability and the lack of progress in lowering government debt. 

Moody's lowered its long-term debt outlook to Aa3 from Aa2, and over the weekend President Emmanuel Macron appointed the fourth prime minister this year. 

France's latest spate of trouble began after the sharply divided National Assembly rejected the proposed social security budget, which led to the passage of a no-confidence vote against Prime Minister Michel Barnier's government. 

France’s public finances will be substantially weakened over the coming years, and "this is because political fragmentation is more likely to impede meaningful fiscal consolidation,” said Moody's in a note released to investors. 

S&P Global has so far not reacted to France's ongoing political turmoil, but the rating agency is likely to revise its debt rating opinion about France's long-term financial outlook. 

The Bank of England is expected to cut its rates by 25 basis points on Thursday following a rate cut in November, and Sweden and Norway are set to announce their monetary policy decisions later this week.

In addition, manufacturing surveys in France and Germany are expected to show contraction amid falling demand growth.

The Flash HCOB Eurozone Composite PMI edged higher to 49.5 in December from 48.3 in November, S&P Global reported Monday. 

Business activities, which include manufacturing and service activities, contracted for the second month in a row, but the decline eased amid a rebound in the service sector activities to 51.4 from 49.5 in the previous month. 

Any reading above 50 indicates expansion, and below 50 shows contraction. 

The manufacturing sector remained, and the index of activities was unchanged from the previous month at 45.2. 

The overall drop in business activity was driven by the weakness in Germany and France, the Eurozone's two largest economies; however, the rest of the members in the currency union showed output growth. 

 

Europe Indexes and Yields

The DAX index decreased by 0.4% to 20,330.46; the CAC-40 index fell by 0.9% to 7,347.56; and the FTSE 100 index inched lower by 0.5% to 8,265.83.

The yield on 10-year German bonds edged higher to 2.24%, French bonds inched up to 3.02%, the UK gilts increased to 4.39%, and Italian bonds increased to 3.39%.

The euro edged higher to $1.05; the British pound inched up to $1.27; and the U.S. dollar advanced to 89.21 Swiss cents.

Brent crude decreased $0.79 to $73.69 a barrel, and the Dutch TTF natural gas rose by €1.17 to €39.98 per MWh. 

 

Europe Stock Movers

Vivendi SE jumped 36% to €2.51 after the French media company completed the spinoff of Canal+, Havas, and Louis Hachette Group. 

Canal+ traded above £2.90 per share in London, Havas NV traded around €1.80 in Amsterdam, and Louis Hachette Group edged lower from its opening price of €1.20 in Paris. 

Settlement delivery of the Canal+, Havas NV, and Louis Hachette Group shares to the shareholders of Vivendi entitled to receive them will take place on December 18, 2024. 

The trading in three stocks is likely to be volatile over the next several weeks as investors take time to understand the business environment and growth drivers over the next years. 

Entain PLC dropped 6% to 765.40 pence after the parent company of Ladbrokes is facing an anti-money laundering investigation in Australia. 

Ricardo PLC gained 1.3% to 407.0 pence after the environmental and engineering consulting company's Australian unit agreed to acquire 85% of E3 Advisory for A$101.4 million or £51 million. 

Porsche Automobil Holding SE dropped 2.3% to €35.15 after the company withdrew its 2024 earnings outlook, citing potential non-cash impairment charges related to its investment in Volkswagen AG and Porsche AG.