French markets remain hostage to political rollercoaster
French bonds under pressure, risk premium highest since euro zone debt crisis
Stocks also underperforming as political uncertainty premium remains
French bank shares remain below levels before Macron called snap election
LONDON, Sept 27 (Reuters) -France finally has a new government, but it is unclear how long it will survive, so the political uncertainty hanging over French financial markets is unlikely to lift anytime soon.
The right-leaning cabinet, appointed 2-1/2 months after an inconclusive snap election, has a tough task ahead to get reforms or the 2025 budget approved by a very divided parliament.
"It's the question mark: How long will that government continue?," said Michael Krautzberger, chief investment officer for fixed income at Allianz Global Investors.
With investor unease rising again, we look at how French assets are faring and what's next:
1/ BONDS BRUISED
France's government bonds are under renewed pressure.
Their closely watched risk premium over German debt is trading around 80 basis points DE10FR10=RR, the most since early August, creeping back to its highest levels since the euro zone debt crisis at more than 85 bps breached in the summer.
French bonds also pay a higher yield than Spain's for the first time since 2008, another sign that investors are no longer willing to look past the creaking public finances in France as fiscal and political questions hurt sentiment towards the euro zone's second-biggest economy.
How French bonds fare will depend on the country's budget, which will test how long the government can last. It needs to be finalised soon before being passed on to lawmakers by mid-October for approval.
Billions of euros in spending cuts and tax increases are needed to close a deficit that risks widening to more than 6% of output.
"I would not touch French government debt. There is too much uncertainty for the time being," said Francois Savary, chief investment officer at Genvil Wealth Management.
He was particularly cautious ahead of an Oct. 25 rating review by Moody's, which has said that worsening debt metrics could lead to a downgrade of the outlook on its rating -- higher than peers Fitch and S&P Global -- to negative.
2/ STOCKS SHUNNED
French stocks have rallied just over 2% since the new government was unveiled last week .FCHI, broadly in line with Europe's STOXX 600 .STOXX.
Yet the overall performance since French President Emmanuel Macron's June 9 decision to call a snap election remains lacklustre and analysts were not hopeful of a rebound anytime soon.
France's CAC 40 index .FCHI has shed roughly 4% since then, while Germany's DAX .GDAXI has risen around 3% and the STOXX 600 has shed just 0.3%. The underperformance is even more stark for French domestically-focused mid-cap stocks, which are down almost 8% .CACMD.
"The performance of French equities since the appointment of the new government has been unremarkable – probably as its durability remains questionable," said Frederique Carrier, head of investment strategy at RBC Wealth Management.
Genvil Wealth Management's Savary added that even though French stocks have cheapened since June, that didn't mean this was a market that needs chasing, with a political uncertainty premium still necessary.
3/ DON'T BANK ON IT
French bank shares, hit especially hard in June, also remain below levels traded before Macron's snap election announcement.
Societe Generale SOGN.PA, BNP Paribas BNPP.PA and Credit Agricole CAGR.PA - the three biggest French banks - are down by between 5% and 13% since then. Europe's bank index is up around 1.5% over the same period .SX7P.
Flora Bocahut, co-head of European banks research at Barclays, noted that while the underperformance of French banks had started to ease, signs of weakening business activity were an added concern.
France's services sector contracted sharply in September, a survey on Monday showed.
"Macro and political uncertainty creates downside risk for French banks and could last for months, but we expect French banks' earnings to rebound into 2026," said Bocahut, citing factors such as cost-savings measures.
4/ NOT HELPING
Euro EUR=EBS traders are mostly preoccupied with the European Central Bank interest rate outlook rather than with French politics right now.
Since hitting two-month lows in June, the euro has rallied 4.8% to just over $1.11. This week, it hit its highest in over a year on investor expectations for steep U.S. rate cuts that have hurt the dollar.
A look at the euro's performance against other European currencies shows its struggles.
It has lost nearly 1% against the safe-haven Swiss franc EURCHF=EBS in that time and is down by about as much against sterling EURGBP=D3. France's acute fiscal problems are adding more ballast. With a budget deficit running almost double the euro zone's 3% limit - this is "not a great environment for the euro," ING says.
The strong man of Europe? https://reut.rs/47GRe1o
French bank stocks feel the pain https://reut.rs/4dfssXr
French stocks underperform https://reut.rs/4dknhW9
Gap between Spanish and French borrowing costs closes https://reut.rs/3MV7e6f
Reporting by Lucy Raitano, Yoruk Bahceli, Amanda Cooper and Dhara Ranasinghe, Editing by Hugh Lawson
免责声明: XM Group仅提供在线交易平台的执行服务和访问权限，并允许个人查看和/或使用网站或网站所提供的内容，但无意进行任何更改或扩展，也不会更改或扩展其服务和访问权限。所有访问和使用权限，将受下列条款与条例约束：(i) 条款与条例；(ii) 风险提示；以及(iii) 完整免责声明。请注意，网站所提供的所有讯息，仅限一般资讯用途。此外，XM所有在线交易平台的内容并不构成，也不能被用于任何未经授权的金融市场交易邀约和/或邀请。金融市场交易对于您的投资资本含有重大风险。
所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。
本网站上由XM和第三方供应商所提供的所有内容，包括意见、新闻、研究、分析、价格、其他资讯和第三方网站链接，皆保持不变，并作为一般市场评论所提供，而非投资性建议。所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为适用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。请确保您已阅读并完全理解，XM非独立投资研究提示和风险提示相关资讯，更多详情请点击 这里。
