Paris Stock Exchange is expected to open lower due to rising political tensions as the government faces instability. The CAC 40 index futures have declined, reflecting investor concerns following a controversial move by the Prime Minister to pass a social security bill. Analysts warn of ongoing political challenges that could hinder budget stabilization. The euro weakens against the dollar, while government bond yields shift, and oil prices increase slightly ahead of an OPEC meeting, despite long-term bearish fundamentals.
Paris Stock Exchange Set for a Rough Start
The Paris Stock Exchange is anticipated to open lower on Tuesday as the escalating political crisis in France heightens risk aversion among investors.
At approximately 8:15 AM, the futures contract for the CAC 40 index – due in December – has dropped by 13 points to 7236 points, indicating a modest decline at the session’s outset.
Political Uncertainty Weighs Heavy on Investors
In the current atmosphere of uncertainty surrounding France, investors are grappling with the recent events in the National Assembly, where the government led by Barnier appears to be on the verge of collapse.
Following the Prime Minister’s decision to invoke Article 49.3 to push through his social security financing bill, Marine Le Pen, head of the far-right faction in the Assembly, declared her group’s intent to introduce a motion of censure.
With analysts warning of a potentially prolonged period of political instability, the existing deadlock raises significant concerns regarding the country’s budgetary challenges and the risk of rising borrowing costs.
Experts at Commerzbank caution, “The formation of a new government that commands broader support is likely to be quite challenging.” They note, “The center lacks a majority, and reaching an agreement with more moderate left-wing parties will be difficult.”
This situation implies that efforts to stabilize French public finances could be slow, especially in the absence of a significant economic boost.
These worries contribute to the ongoing decline of the Paris market, which has experienced a 9.5% drop over the last six months, preceding its potential dissolution.
Investment strategy advisor Christopher Dembik from Pictet AM describes the mood on the Paris Stock Exchange as grim, stating, “Economic indicators are disappointing, particularly in manufacturing and services PMI, which have remained well below 50 for months, indicating severe contraction that spells trouble for the French economy.”
In this context, Dembik notes, “It wouldn’t be surprising if the CAC 40 finishes the year below the symbolic 7000 points, landing in negative territory, while the S&P 500 is projected to gain over 25% year-on-year.”
The renewed risk aversion is benefiting government bonds, with yields declining across the board, except for French OATs. The yield on the German ten-year Bund has eased to 2.03%, while that of its French counterpart has increased to 2.91%, widening the yield gap between the two nations to 0.88 basis points.
On the currency front, the euro continues to weaken against the dollar, trading around 1.0490, as the political uncertainty in France negatively impacts the single currency.
Oil prices have seen a slight uptick ahead of the upcoming OPEC meeting, with Brent rising by 0.4% to $72.1 per barrel and West Texas Intermediate (WTI) climbing 0.3% to $68.3.
Despite this, analysts at DeftHedge highlight that crude oil prices “remain near critical support levels” and assert that “the fundamentals continue to support a long-term price decline.”