European Stocks Sink by Most Since April on French Election Risk

(Bloomberg) -- European stocks slumped by the most in almost two months as investors worried about the potential impact of rising political risk in France.

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The Stoxx Europe 600 Index slipped 1.3% by the close, with about 88% of its constituents in the red. France’s CAC 40 Index sank 2.0%. The French equity benchmark is down nearly 4% since Monday and is heading for its worst week in a year.

The country’s bonds also declined, driving yields over safer German peers to the highest level in seven years amid concerns that Marine Le Pen’s far-right National Rally party will usher in looser fiscal policies if it wins upcoming legislative elections.

“We are in a period where there are no certainties for three-to-four weeks and the market could unfortunately become more unstable, penalizing France and in general Europe versus the US,” said Alberto Tocchio, a portfolio manger at Kairos Partners. “French debt is 52% held by foreign investors and this could potentially lead to more volatility.”

Automakers slid as the European Union announced that it will impose tariffs of as much as 48% on electric-vehicle imports from China. Banks and chemicals stocks also underperformed.

Among individual stocks, Wise Plc sank after the fintech firm’s outlook for revenue growth disappointed. Novo Nordisk A/S fell as a newspaper report said Denmark was telling doctors that the company’s weight-loss drug Wegovy should be used to a lesser extent.

The rally in European stocks has stalled in June, even as investors bet on central bank policy easing this year. The European Central Bank cut rates this month, although the Fed signaled on Wednesday that it expects to lower borrowing costs only once in 2024 instead of the three reductions penciled in previously.

That hawkish indication is also weighing on investor sentiment, Liberum strategist Joachim Klement said. “However, investors should not forget that inflation in Europe and the UK is lower than in the US. This should give European market the necessary support to continue their 2024 rally and overcome the soft spot of recent weeks,” he said.

The UK’s FTSE 100 dropped 0.6%. Labour Leader Keir Starmer set out his party’s plan for government, focused on economic growth and security, a crunch moment for Britain’s would-be prime minister ahead of the general election on July 4.

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--With assistance from Michael Msika.

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