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CAC 40 Dips 2.4% Amid Macron's Snap Election Call

Macron's snap election call drops CAC 40 by 2.4%, euro hits one-month low at $1.0748.

6/10, 06:36 EDT
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Key Takeaway

  • Macron's snap election announcement caused the CAC 40 to drop 2.4%, with BNP Paribas and Societe Generale falling over 5%.
  • The euro hit a one-month low at $1.0748, and the yield on French 10-year bonds rose by 10 basis points to 3.19%.
  • Analysts warn of potential political instability impacting French spreads, with concerns about fiscal health and market performance.

Market Reaction to Macron's Election Call

President Emmanuel Macron's unexpected announcement of a snap election sent shockwaves through French financial markets on Monday. The CAC 40 equity index in Paris dropped 2.4%, with shares in major French banks like BNP Paribas SA and Societe Generale SA plummeting over 5%. The broader European market also felt the impact, with the pan-European Stoxx 600 index slipping 0.9%. The euro fell to a one-month low, declining as much as 0.5% to $1.0748.

The premium investors demand to hold 10-year French bonds relative to their German counterparts rose to the highest level since January, with the yield on French 10-year bonds increasing by 10 basis points to 3.19%. This widening spread reflects growing concerns about France's fiscal health and the potential for political instability.

"His [Macron’s] courage is undeniable, we’d give him that, but it seems like doubling down on a bet after a poor performance," said Stefan Koopman, senior macro strategist at Rabobank. "Investors don’t share Macron’s risk appetite."

Analysts' Perspectives

Market analysts have weighed in on the potential implications of Macron's election call. Mohit Kumar, chief economist and strategist for Europe at Jefferies, noted, "Macron called for French elections, which would be negative for French spreads as a right-wing majority in the Parliamentary would hamper any reform plans. The deficit picture in France is already weak and this would further add to market concerns."

Vincent Mortier, chief investment officer at Amundi, offered a more measured view: "Markets will be prudent but not panicked. French stocks will likely underperform European peers to some extent and the spread between yields on French and German sovereign debt could widen modestly. There will, of course, be an impact. But from my point of view, it won’t be a major one."

Sonja Marten, head of FX and monetary policy research at DZ Bank, highlighted the potential currency impact: "Should the election in France result in a win for Le Pen and should this add to strife within the Eurozone, then yes, I think this will impact the Euro negatively. But for that to translate into less rate cuts from the ECB, the depreciation of the Euro would have to be quite pronounced."

Broader Economic Implications

The election call has broader implications for France's economic trajectory. Alberto Tocchio, portfolio manager at Kairos Partners, emphasized the importance of the parliamentary composition: "The composition of parliament will be crucial to understand the new trajectory as the French budget was voted in December and the far right has reached popularity on the inflation and loss of purchase power which may lead to a new budget trajectory. In the short term we might see an impact on the spread between OATs and Bunds as the period from June to October is heavy for OAT issuance."

Ulrich Leuchtmann, head of FX research at Commerzbank, pointed out the risks to the euro: "The euro suffers when the question arises as to whether a politically created transnational currency can survive in the long term if the political framework conditions change. So far, the rampant euro skepticism has not caused any significant damage to the euro. However, the risk that this will not remain the case increased yesterday. Only marginally, but to a visible extent."

Street Views

  • Stefan Koopman, Rabobank (Bearish on French markets):

    "His [Macron’s] courage is undeniable, we’d give him that, but it seems like doubling down on a bet after a poor performance. Investors don’t share Macron’s risk appetite."

  • Mohit Kumar, Jefferies (Bearish on French spreads):

    "Macron called for French elections, which would be negative for French spreads as a right wing majority in the Parliamentary would hamper any reform plans. The deficit picture in France is already weak and this would further add to market concerns. We have been short France over the last few months and remain with our bearish stance."

  • Vincent Mortier, Amundi (Neutral on French stocks):

    "Markets will be prudent but not panicked. French stocks will likely underperform European peers to some extent and the spread between yields on French and German sovereign debt could widen modestly. There will, of course, be an impact. But from my point of view, it won’t be a major one."

  • Sonja Marten, DZ Bank (Bearish on Euro if Le Pen wins):

    "Should the election in France result in a win for Le Pen and should this add to strife within the Eurozone, then yes, I think this will impact the Euro negatively. But for that to translate into less rate cuts from the ECB, the depreciation of the Euro would have to be quite pronounced."

  • Alberto Tocchio, Kairos Partners (Cautiously Optimistic about understanding new budget trajectory):

    "The composition of parliament will be crucial to understand the new trajectory as the French budget was voted in December and the far right has reached popularity on inflation and loss of purchase power which may lead to a new budget trajectory. In short term we might see an impact on spread between OATs and Bunds as period from June to October is heavy for OAT issuance."

  • Ulrich Leuchtmann , Commerzbank (Neutral-to-Bearish outlook for euro stability): > "The euro suffers when question arises whether politically created transnational currency can survive long term if political framework conditions change... However risk that this won't remain case increased yesterday only marginally but visible extent"

  • Thomas Zlowodzki , Oddo BHF ( ** Bearish **on European equities) :

    "Emmanuel Macron calling snap legislative elections ratchets up political risk Europe opens up period uncertainty [...]. Short term European equities first foremost french ones hit: recommend easing positions .OAT-Bund spread also widen."

  • Chris Turner , ING ( ** Bearish **on EUR/USD ):

    "While Marine le pen's National Rally party shifted away anti-euro manifesto ran 2017 fears shifting support Ukraine stand unnerve markets today EUR/USD well another leg lower 1 .0700/0720 area once US investors fully chance appreciate events european politics"