- French bank stocks fall sharply
- Vinci and Eiffage also fall while Le Pen gains ground
- The first ballot is on October 10th
LONDON/PARIS, April 5 (Reuters) – French stocks and bonds fell on Tuesday as markets began to acknowledge the risk of far-right candidate Marine Le Pen winning this month’s presidential election against incumbent Emmanuel Macron.
The benchmark French stock index CAC-40 (.FCHI) was down 1.3% by 1215 GMT, lagging the pan-European STOXX 600 (.STOXX), which was flat.
French government borrowing costs also rose sharply, with 10-year bond yields rising 10 basis points.
Sign up now for FREE unlimited access to Reuters.com
The spread between French and German 10-year government bond yields – essentially the premium charged by investors for holding French debt – widened to 54 basis points, a level not seen since the COVID-19 market crash in 2020 was reached.
Le Pen, whose presidential campaign has picked up momentum in recent days, captured 48.5% of voter intentions in an opinion poll on a likely runoff against Macron on Monday, the highest score she has ever achieved.
The Harris Interactive poll for business magazine Challenges found that a Macron win – which pollsters had considered almost a foregone conclusion – is now within error. Continue reading
“Markets woke up to Le Pen,” said Jerome Legras, head of research at Axiom Alternative Investments.
French banks Societe Generale (SOGN.PA), BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA) suffered the biggest losses with losses of 4-6%, far more than the 1.3% drop in one broader European banking index (.SX7P).
One trader said the sell-off was particularly notable in stocks vulnerable to a Le Pen election.
“Look at Vinci and Eiffage, their underperformance is a victim of Le Pen’s risk,” the trader said, pointing to the far-right leader’s plans to nationalize France’s motorway operators.
Shares in the two infrastructure groups fell around 5% on the day (FOUG.PA).
The turmoil brings back memories of the 2017 election, when fears of left or right extremism sent the French government’s borrowing costs skyrocketing and pushed stocks sharply lower.
Many investors see Le Pen’s platform, which aims to keep the statutory retirement age at 62, as generous on public spending. She is also considered less business-friendly than Macron.
“Le Pen would likely be viewed by markets as less reliable in terms of public spending and economic competitiveness, and an unenthusiastic driver and/or unreliable partner for Germany and NATO at a pivotal moment for Europe and the West,” NatWest economist said Giovanni Zanni last week compared to customers.
French common
FRENCH DEBT
Zanni reckons a surprise gain for Le Pen could lower French 10-year spreads over Germany by 50 basis points – essentially the premium required by investors to hold French bonds. That would bring the spread to a similar level as Spain, which has a lower credit rating.
In the run-up to the 2017 election, spreads had exploded to nearly 80 basis points.
Francois Raynaud, multi-asset fund manager at Edmond de Rothschild Asset Management, said selling French bonds — known as OATs — against the German bund over 10-year futures is a good hedge against a surprise election result.
“By default, it seems reasonable to us to take underweight protection in French weights versus other indices or via the OAT futures,” Raynaud told Reuters on Monday ahead of the recent sell-off.
Many investors remain unimpressed – Grace Peters, head of EMEA investment strategy at JP Morgan Private Bank, still favors French stocks, particularly luxury and energy stocks that are less vulnerable to the domestic economy.
“A Le Pen win is the wild card out there that could be disruptive. But the base case is still Mr. Macron,” Peters said.
Others scan the markets for risk.
The euro fell a quarter percent on Tuesday against the safe-haven Swiss franc to a monthly low, but Adam Cole, a strategist at RBC Capital Markets, sees the euro’s risk premium likely to rise in the coming weeks.
“Could financial markets also be showing signs of complacency ahead of the polls? We think that’s a significant risk,” he said.
Sign up now for FREE unlimited access to Reuters.com
Reporting by Julien Ponthus and Samuel Indykin London, Sudip Kar-Gupta in Paris and Danilo Masoni in Milan; Adaptation by Sujata Rao and Ed Osmond
Our standards: The Thomson Reuters Trust Principles.
Comments are closed.