French assets faced renewed pressure as concerns mounted over the government’s stability and proposed budget cuts. The benchmark stock gauge slumped as much as 2.2 per cent, extending losses from the previous day, following Prime Minister Francois Bayrou’s announcement of a confidence vote in his government. By late afternoon in Paris, losses were pared back to 1.5 per cent. The yield difference between French and German 10-year debt, a key risk indicator, reached its widest point since April.
Investors are reminded of France’s political volatility and fragile financial position, with assets retreating towards levels seen a year prior. The political debate over the government’s debt burden in 2024 previously resulted in the removal of Bayrou’s predecessor after a mere 90 days and the loss of a parliamentary majority for President Emmanuel Macron.
Andrea Tueni, head of sales trading at Saxo Banque France, noted the resurgence of the risk premium on French assets, stating the market is acknowledging France’s deep political crisis amid a challenging economic backdrop. French financial stocks experienced significant declines, with AXA, Societe Generale, and BNP Paribas all decreasing by 6 per cent or more at one stage.
A Barclays basket of companies heavily exposed to French domestic risks, including potential budget fallout, fell as much as 4.4 per cent. One-week volatility saw its largest increase in a month, with political risk in France contributing to the market’s movement.
