Obviously, the Paris Stock Exchange cannot escape the political uncertainty that has reigned in France since the shock announcement on Sunday evening by President of the Republic Emmanuel Macron to dissolve the National Assembly. Destabilized at the prospect of seeing a representative of the National Rally (RN) – it would most likely be Jordan Bardella – settling in Matignon, the Cac 40 experienced another difficult session, between a drop in shares and a rise in borrowing rates. The flagship Parisian index dropped 1.33%, returning to 7,789.21 points, its lowest level since February 19, after attempting a rebound early in the morning. On Monday, it had already fallen by 1.35%. This reduces its progression since January 1 to 3.26%, compared to 6.1% on the eve of the weekend.
There are three possible scenarios for France following the early legislative elections on June 30 and July 7, summarizes Benjamin Melman, CIO of Edmond de Rothschild Asset Management: “ The renewal of the same relative majority, a relative majority for the RN or an absolute majority for the RN. Each of these scenarios presents unique challenges to the governability of the country. » According to him, the RN’s economic program, expected within three weeks, could worsen the situation of public finances, as was the case during the 2022 presidential elections. The threat of a further downgrade of Paris’s rating, after that of S&P which occurred on May 31, hovers elsewhere. The rating agency Moody’s, which currently assigns an “Aa2” rating to France with a stable outlook, does not hide its concerns regarding budgetary control, and therefore its rating. The agency points out the risk of an increase in motions of censure during the next legislature in the event of a victory for the RN and sees this as a danger “ increased political instability, especially since the National Assembly cannot be dissolved in its first year. »
The effect on the market is all the more significant as major American managers considered Europe relatively attractive thanks to the monetary policy differential and the start of stabilization of the cycle.
While stocks are toasting, particularly those of the big banks once again – BNP Paribas, Société Générale and Crédit Agricole lost between 3.89% and 5.02% – the French ten-year borrowing rate continues to climb, so that the gap (or spread in the jargon) with the German rate at the same maturity suddenly jumped to 69 basis points, a sign of investors’ growing mistrust of France’s credit quality and its ability to honor its debt.
The specter of the privatization of public broadcasting
Among the other stocks in default are motorway concessionaires, such as Vinci (-3.86%), and the media compartment, TF1 (-6.95%), M6 (-3.12%) and NRJ Group (- 3.79%) in the first place. The reason ? The scarecrow raised by the vice-president of the RN, Sébastien Chenu, of nationalization in the first case and privatization of public broadcasting in the second in the event of his party’s victory. Such a measure would be “ very negative » for current private audiovisual players, comment Oddo BHF analysts in a note, because it is synonymous with “ very sharp drop in revenues and therefore margins “. According to them, this project would nevertheless be difficult to implement.
The torments of French political life obscure, at least temporarily, the other major events of the week, particularly economic ones. On Wednesday, the Federal Reserve’s Monetary Policy Committee (FOMC) will deliver its verdict on interest rates. A priori, the interest rate should remain within its current range of 5.25% to 5.5%, their level since July 2013.
Dot Plot
However, the Fed meeting is not without interest. “ The members of the FOMC will indeed review their projections for the economy (growth, inflation, unemployment) and for key ratesrecalls the Oddo BHF firm. In March, the central scenario pointed to three rate cuts this year. It will necessarily be less but it is difficult to say whether the midpoint of the ‘dot chart’ will increase to two or to one. » A scenario with two cuts would leave the Fed more room to maneuver, especially since the latest employment data, for example, do not show any risk of overheating.
Just before making its decision, the Fed will have taken note of the inflation figures in May. They should show a slowdown in the monthly rate to 0.1%, after 0.3% in April, due to the decline in energy prices. On an annual basis, however, a stabilization at 3.4% is expected. Excluding food and energy, the two most volatile components, inflation was, according to consensus, established at 0.3% in May and slowed by a tenth over a year, to 3.5%. Obviously, the Fed does not stop at just one month’s data; it will need more to convince it that disinflation is on the way and that rates must be lowered. “ The Interest Rate Guessing Game Continuesestimates Chris Larkin, at E*Trade. Even the most favorable inflation numbers likely won’t prompt the Fed to act before September “, he predicts. The markets, for their part, expect only one monetary easing this year, in November according to the gauge developed by CME Group based on futures on Fed funds.
