Traders avoid risks as France turmoil shakes the globe: markets are mixed

(Bloomberg) — A new wave of anxiety gripped global markets as concern over a political crisis in France deepened, sending stocks tumbling and spurring a flight into safe-haven assets — from bonds to gold and the U.S. dollar.

Bloomberg’s Most Read

Investors have eliminated some risks, with French shares this week losing around $210 billion in value – roughly the size of Greece’s economy – after President Emmanuel Macron called early elections. French bonds have been at the center of the crisis over the period, with the premium demanded by investors to own 10-year debt relative to German peers jumping to a record this week.

ECB officials see no cause for alarm over French market turmoil

“The situation in Europe is starting to get a little dangerous,” said Matt Maley of Miller Tabak + Co. “The move is still a long way from developing into another sovereign debt crisis, but with concerns about sky-high sovereign debt levels. and bloated budgets, developments in Europe (and particularly France) are raising some concerns in the market.”

In the US, stocks also struggled to gain traction after an indicator of consumer sentiment fell to a seven-month low, as high prices continued to affect the outlook on personal finances. Federal Reserve Bank of Cleveland President Loretta Mester said she still sees inflation risks tilted to the upside despite the welcome news in the latest data.

The S&P 500 closed slightly lower, led by a drop in industrial stocks. Technology outperformed, with Adobe Inc. rising 15% on a strong outlook. The Stoxx Europe 600 fell 1%. France’s CAC 40 index extended losses to more than 6% for the week, the biggest since March 2022. Societe Generale SA, BNP Paribas SA and Credit Agricole SA each sank more than 10% this week.

10-year Treasury yields fell four basis points to 4.21%. The dollar reached its highest value since November. The euro was among the worst performing major currencies against the dollar this week.

What Macron’s snap vote means for debt risk

European Central Bank officials see no cause for alarm in the market turmoil that has gripped France in recent days, according to people with knowledge of the matter. An ECB spokesperson declined to comment.

Traders’ anxiety increased after a coalition of French left-wing parties presented a manifesto to dismantle most of Macron’s seven years of economic reforms and put the country on a collision course with the European Union over fiscal policy. .

The story continues

“While we normally think that what happens in Paris stays in Paris (or at least in Europe), the current episode has taken on a more worrying character for global financial markets than it might otherwise have been,” said Ian Lyngen. at BMO Capital Markets. “It has been difficult to completely dismiss talk of the election outcome’s potential to ultimately drive France out of the European Union as ‘wild speculation’, especially in light of the experience with Brexit.”

For Thierry Wizman, from Macquarie Group, France is heading towards one of two extreme political scenarios.

“Neither group is dedicated to pro-market principles, nor to fiscal responsibility, nor, possibly, to the single currency.”

ECB’s Lagarde says disinflation in the eurozone will be turbulent

European equity funds suffered a fourth week of outflows of around $600 million, while cash funds saw additions of $40.4 billion – the largest among all asset classes, according to a note from Bank of America Corp.

About $6.3 billion flowed into global equity funds in the week to June 12, with US stocks recording an eighth week of inflows, according to the note citing data from EPFR Global. Europe is the only region recording departures this year.

European stock market flows are at risk of declining further if there is no positive catalyst to reassure foreign investors in the short term, says Barclays Plc.

Strategists led by Emmanuel Cau exited their overweight position earlier this week and advise caution in the region for now – citing the political situation in France.

“We have difficulty finding a compelling reason to overweight continental Europe, even as this has become more consensus year-to-date,” they wrote.

Transactions of more than $1 million between dollar-denominated bonds from major French banks have proliferated in recent days and are now much more frequent than high-value transactions in their euro area peers, based on Trace data compiled by Bloomberg.

This has hit the debt of creditors such as BNP Paribas and Credit Agricole.

Elsewhere, the Bank of Japan is making investors wait until its July meeting for details on tapering bond purchases, leaving the yen vulnerable to further declines.

The central bank’s decision on Friday to hold interest rates was widely expected, but investors were surprised that it only signaled a cut in debt purchases without presenting any numbers or a timeline.

“The Bank of Japan sent the already anemic yen into crisis when it refused to provide a timetable for reducing bond purchases, which many investors believe is essential to supporting the country’s currency,” said José Torres of Interactive Brokers.

Corporate Highlights:

• The European Commission plans to allege that Apple Inc. stifles competition in its mobile app store, the Financial Times reported, citing three people with close knowledge of the investigation.

• The Federal Aviation Administration is investigating how titanium with potentially falsified records made its way from an obscure Chinese producer into commercial jets made by Airbus SE and Boeing Co.

• Home Depot Inc. is canvassing investors for a corporate bond sale that could total $10 billion to help finance its acquisition of SRS Distribution Inc., according to people with knowledge of the matter.

• Red Lobster and Fortress Investment Group, a major creditor that could end up owning the Chapter 11 seafood chain, has struck a deal with a major creditor group to avoid potential hurdles to the restaurant operator’s sale and its continued use of U.S. $100 million in bankruptcy financing.

Some of the main movements in the markets:

Actions

• The S&P 500 was little changed as of 4 p.m. New York time

• The Nasdaq 100 rose 0.4%

• The Dow Jones Industrial Average fell 0.1%

• The MSCI World index fell 0.3%

Coins

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.3% to $1.0704

• The British pound fell 0.6% to $1.2688

• The Japanese yen fell 0.2% to 157.29 per dollar

Cryptocurrencies

• Bitcoin fell 1.8% to $65,497.72

• Ether fell 2.1% to $3,405.55

Titles

• The 10-year Treasury yield fell four basis points to 4.21%

• Germany’s 10-year yield fell 11 basis points to 2.36%

• Britain’s 10-year yield fell seven basis points to 4.06%

goods

• West Texas Intermediate crude fell 0.2% to $78.46 a barrel

• Spot gold rose 1.2% to $2,332.88 an ounce

This story was produced with help from Bloomberg Automation.

Bloomberg Businessweek Most Read

©2024 Bloomberg LP

Source