Macron Election Call Sends French Markets to Worst Week in Years

(Bloomberg) -- Investors swiftly rebuked French President Emmanuel Macron’s snap-election call as it ignited warnings of a further deterioration in the nation’s finances and even fears of a fresh euro crisis.

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Government bonds were at the heart of the rout, with the premium that investors demand to own 10-year OATs over German bunds posting the biggest weekly jump on record. The selloff wiped about $210 billion off the value of French stocks, with banks Société Générale SA, BNP Paribas SA and Crédit Agricole SA — all big holders of government debt — losing more than 10% each.

The CAC 40 Index is down 6.2% on the week, surrendering its gain for the year and marking its biggest weekly drop since March 2022. The slump puts France at risk of losing its crown as the largest equity market in Europe. The euro is the worst-performing major currency this week against the dollar.

Investors are recoiling from the prospect that Macron’s centrist, pro-business Renaissance party will lose further ground in Parliament in the two-round vote, June 30 and July 7. That could result in the president appointing a prime minister from Marine Le Pen’s far-right National Rally party or from a leftwing coalition. Macron has said he won’t resign regardless of the election outcome.

Stock prices took a further leg down Friday after parties on the left agreed to present a united front at the elections. They pledged to undo most of Macron’s seven years of economic reforms and would refuse the European Union’s fiscal pact governing debt and deficits.

A surge for the far right or for the left would mean higher government spending at a time when France already is failing to contain its budget deficit, while also calling into question how committed the country is to closer ties in the EU.

“The election play pulls forward and crystallizes a toxic set of risks that threatens a prolonged phase of dysfunctionality in the EU and in the tail could threaten a new euro crisis,” said Krishna Guha, vice chairman of Evercore ISI. “It is hard to over-emphasize the importance for markets and the functioning of the EU that France continues to be viewed as a ‘core’ country with a sufficiently mainstream government.”

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“French government bonds are headed for their worst week in about 13 years, but there’s worse to come as yield spreads widen further and cast a pall of gloom over the euro and peripheral debt securities.”

— Ven Ram, strategist

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Sovereign bonds

French bonds sold off sharply in the days after Macron announced the election Sunday night, underperforming other European government debt. Investors including Colin Finlayson, co-manager of the Aegon Strategic Bond Fund, bet against France by selling 10-year futures versus Germany.

“There’s a good chance that the opinion polls and possibly the first round of voting could see a surprising level support for the far right,” he said in an interview. He pointed to “asymmetric risk” with the spread potentially moving another 30 basis points or so wider “if things get much worse,” he added.

The contagion spread to Italy and Spain on worries about the fallout from the stress on public finances. The 10-year yield premium on Italian bonds over Germany hit a four-month high Friday.

While pricing in bond markets shows no signs of panic, the unity on the left doesn’t bode well for the centrists, according to Uwe Maderer, head of fixed income at LBBW Asset Management.

“Macron’s gamble on new elections can go badly wrong after the left-wing parties agreed to unite, which would undermine strongly Macron’s centrist alliance,” he said by phone. “They can be nearly wiped out in the election in a worst-case scenario.”


The benchmark CAC 40’s slump was the biggest in the world this week, with all 40 stocks in the index falling. Besides banks, the biggest decliners in the broader market included toll-road operators Vinci SA and Eiffage SA, on concern that the highways could be re-nationalized if Macron’s party loses power.

The underperformance for the CAC is a big turnaround from the recent trend. The index closed at a record in May, but it’s been weighed down by weakness in France’s giant luxury companies — LVMH, Hermes International SCA and Kering SA — as Chinese consumers hold off on spending.

In Italy, the FTSE MIB index has dropped more than 5% in its worst week since March 2023. The weekly drop in Spain’s IBEX 35 Index is also the biggest since March 2023.


The euro has tumbled through $1.07, a six-week low against the dollar, while volatility metrics for the next month have surged, suggesting that traders see a risk of erratic trading in the lead-up to the vote. French Finance Minister Bruno Le Maire warned that a new left-wing coalition coming to power in France would lead to the country’s exit from the European Union.

“It is going to be a long month for the euro,” said Chris Turner, head of foreign exchange strategy at ING Bank NV, who sees the currency heading toward $1.06 next week.

--With assistance from James Hirai, Verena Sepp, Vassilis Karamanis, Naomi Tajitsu, Farah Elbahrawy, Jan-Patrick Barnert and Michael Msika.

(Updates prices throughout.)

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