A renewed bout of volatility 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.
Equities dropped around the world, with French stocks this week losing roughly $200 billion in market capitalization — or about the size of Greece’s economy — following President Emmanuel Macron’s decision to call 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 heading for the biggest weekly surge on record.
“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.”
Trader anxiety grew after a coalition of France’s left-wing parties presented a manifesto to pick apart most of his 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.
The S&P 500 dropped to around 5,400. France’s CAC 40 Index extended losses to over 6% on the week, heading for its biggest slide in the span since March 2022. Treasury 10-year yields declined two basis points to 4.23%. The dollar headed toward its highest since November.
This article was provided by Bloomberg News.