The Paris Stock Exchange was in sharp response on Wednesday, with blue, white and red assets being shunned by investors due to the political crisis sweeping through France, still in the dark over the budget for the year 2025. The flagship index of the Paris Stock Exchange, the CAC 40, fell by 73.76 points, or 1.03%, to 7,121.67 points around 9:50 a.m. On Tuesday, the CAC 40 ended down 0.87% at 7,194.51 points, the lowest since August 7.
It is especially the compulsory market which attracts attention, the gap between French (3.04% around 9:50 a.m.) and German (2.17%) ten-year borrowing rates having reached its highest level since end of July 2012, a sign of growing investor fears about the vote on the draft budget and the future of the government. “The risks remain significant as the end of the year approaches while the budget seems difficult to adopt and the Barnier government could fall,” comments Xavier Chapard, strategist at LBP AM.
Negative outlook
Michel Barnier's government wants to reduce the public deficit from 6.1% of GDP in 2024 to 5% in 2025, then below the European ceiling of 3% in 2029, a trajectory imposed on Tuesday by Brussels. He plans to use article 49.3 of the Constitution to adopt without a vote the Social Security and State budgets as well as budget execution for 2024, but the use of this article will leave the door open to a. motion of censure from the left, which the far-right National Rally party threatens to support.
Seven deputies and seven senators will try on Wednesday in a joint committee to reach a compromise on the 2025 Social Security budget. Another factor of tension, the announcement on Friday of France's rating by the S&P Global Ratings agency. The market expects it to “lower the rating outlook to negative like the other agencies”, continues Mr. Chapard. In October, Moody's and Fitch maintained the French rating with a negative outlook.
Apart from the domestic situation alone, “the markets remain strongly guided on a day-to-day basis by expectations of what the Trump administration will do starting in January,” continues the strategist. “The return of trade policy as a means of pressure in international negotiations reinforces the outperformance of American assets compared to those of the rest of the world, in particular those of Europe,” he added. For example, on Wall Street, the S&P 500 closed on its fifty-second record of the year (+0.57%) on Tuesday. The Nasdaq gained 0.63% and the Dow Jones 0.28%. Since January 1, all these American places have posted gains of between 19% and 27%, where the CAC 40 is in response of more than 5%.
On Wednesday, investors will turn to the PCE inflation index in the United States for the month of October, considered a benchmark for the American central bank (Fed). Investors will also pay attention to the release in the United States of “weekly claims for unemployment benefits, the second estimate of GDP for the third quarter and the preliminary reading of durable goods orders for the month of October”, summary Jim Reid, economist at Deutsche Bank.
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