(Bloomberg) — A renewed wave of anxiety gripped global markets as concern over a political crisis in France deepened, driving stocks down while spurring a flight to haven assets — from bonds to gold and the US dollar.
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Equities dropped around the world, with French shares this week losing roughly $210 billion in value — about the size of Greece’s economy — after President Emmanuel Macron called a snap election. The nation’s bonds were at the heart of the rout, with the premium that investors demand to own 10-year debt over safer German peers seeing its biggest weekly surge on record.
ECB Officials See No Cause for Alarm Over French Market Turmoil
“The situation in Europe is starting to get a little dicey,” said Matt Maley at 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, the developments in Europe (and particularly France) are raising some concerns in the marketplace.”
In the US, the stock market also fell as a gauge of consumer sentiment unexpectedly sank to a seven-month low as high prices continued to take a toll on views of personal finances. Apple Inc. was hit after a news report saying the European Commission plans to allege the company stifles competition on its mobile app store.
The S&P 500 dropped to around 5,420, led by industrial shares. The Stoxx Europe 600 fell 1%. France’s CAC 40 Index extended losses to over 6% on the week, its biggest slide since March 2022. Societe Generale SA, BNP Paribas SA and Credit Agricole SA — all big holders of government debt — lost more than 10% each this week.
Treasury 10-year yields declined three basis points to 4.22%. The dollar headed toward its highest since November. The euro is among the worst-performing major currencies this week against the greenback, with volatility metrics for the next month soaring.
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European Central Bank officials see no cause for alarm in the market turbulence that has engulfed France in the past few days, according to people with knowledge of the matter. A spokesperson for the ECB declined to comment.
Trader anxiety grew after a coalition of France’s left-wing parties presented a manifesto to pick apart most of Macron’s seven years of economic reforms and set the country on a collision course with the European Union over fiscal policy.
“Given the relevance of the French economy to the EU as well as flashbacks to Brexit, we’re sympathetic to the flight-to-quality and the fact that one would need to seriously consider the longer-term prospects for the EU in the event that France follows the UK and leaves the building, as it were,” said Ian Lyngen and Vail Hartman at BMO Capital Markets.
To Thierry Wizman at Macquarie Group, France is moving toward one of two extreme political scenarios.
“Neither of assemblage is dedicated to pro-market principles, nor fiscal responsibility, nor, possibly the single currency.”
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European stock funds suffered a fourth week of outflows at about $600 million, while cash funds had additions of $40.4 billion — the biggest among all the asset classes, according to a note from Bank of America Corp.
About $6.3 billion flowed into global stock funds in the week through June 12, with US equities registering an eighth week of inflows, according to the note citing EPFR Global data. Europe is the only region seeing outflows this year.
European stock flows are at risk of further unwind without a positive catalyst to reassure foreign investors in the near term, Barclays Plc says.
Strategists led by Emmanuel Cau closed their overweight stance earlier this week and advise caution on region for now, citing the political situation in France.
“We struggle to see a compelling reason to overweight continental Europe, even while it has become more consensus year-to-date,” they wrote.
Transactions of more than $1 million among the dollar-denominated bonds of major French banks have proliferated in recent days and are now much more frequent than large-ticket trades in their euro-area peers, based on Trace data compiled by Bloomberg.
That’s hit the debt of major lenders like BNP Paribas and Credit Agricole.
Elsewhere, the Bank of Japan is making investors wait until its July meeting for details on its paring of bond buying, leaving the yen vulnerable to further declines.
The central bank’s decision Friday to stand pat on interest rates was widely expected, but traders were surprised by it just flagging a cut in debt purchases without laying out any figures or a timeline.
Given that more than half of economists surveyed by Bloomberg had expected the central bank to begin cutting its purchases in June, the announcement was viewed by many analysts and investors as a delay in the normalization of policy that’s vital to the recovery of the currency.
“The Bank of Japan sent the already anemic yen into a tailspin when it declined to provide a timeline for scaling back its bond purchasing, which many investors believe is essential for shoring up the country’s currency,” said Jose Torres at Interactive Brokers.
Corporate Highlights:
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The Federal Aviation Administration is probing how titanium with potentially falsified records made its way from an obscure Chinese producer onto commercial jets manufactured by Airbus SE and Boeing Co.
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Tesla Inc. investors re-approved Elon Musk’s compensation and cleared the company moving its legal home to Texas, offering votes of confidence in the chief executive.
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Adobe Inc. projected strong future sales for its creative products, suggesting customers are adopting the company’s new artificial intelligence-based tools.
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Home Depot Inc. is sounding out investors for a corporate bond sale that could total $10 billion to help fund its acquisition of SRS Distribution Inc., according to people with knowledge of the matter.
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Furniture retailer RH reported a heavier-than-expected first-quarter loss.
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California’s biggest utility sees power demand doubling by 2040, driven by artificial intelligence, electric cars and other efforts to electrify more of the economy, according to PG&E Corp.’s top executive.
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Red Lobster and Fortress Investment Group, a major lender that may end up owning the seafood chain out of Chapter 11, struck a deal with a key creditor group to avert potential hurdles to the sale of the restaurant operator and its continued use of $100 million in bankruptcy financing.
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.1% as of 1:47 p.m. New York time
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The Nasdaq 100 rose 0.3%
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The Dow Jones Industrial Average fell 0.3%
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The MSCI World Index fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.3% to $1.0700
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The British pound fell 0.6% to $1.2686
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The Japanese yen fell 0.2% to 157.31 per dollar
Cryptocurrencies
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Bitcoin fell 1.9% to $65,420.32
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Ether fell 2.5% to $3,390.47
Bonds
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The yield on 10-year Treasuries declined three basis points to 4.22%
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Germany’s 10-year yield declined 11 basis points to 2.36%
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Britain’s 10-year yield declined seven basis points to 4.06%
Commodities
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West Texas Intermediate crude rose 0.3% to $78.83 a barrel
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Spot gold rose 1.3% to $2,333.74 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Andre Janse van Vuuren, Macarena Muñoz, Jan-Patrick Barnert, Alice Gledhill, Sagarika Jaisinghani, Tasos Vossos, Matthew Burgess, Chiranjivi Chakraborty and Winnie Hsu.
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