French stocks drag down European markets on vote fears

NEW YORK, United States — The Paris stock exchange plunged to its worst weekly performance in more than two years on Friday, dragging down other European markets and the euro as investors fret over France’s looming snap election.

Meanwhile, Wall Street had a mixed day, with the Nasdaq edging to a fresh record, while both the Dow and S&P 500 fell modestly.

But the focus remained on the fallout from last weekend’s European elections, where far-right parties made significant gains.

“The French political jitters sent the European shares to a slippery slope this week,” Swissquote bank analyst Ipek Ozkardeskaya told AFP.

“Some investors probably feel safer by closing their positions into what could be another chaotic weekend,” she said.

The French capital’s benchmark CAC 40 stocks index fell more than 3 percent at one point before closing 2.7 percent lower on Friday.

It was down 6.2 percent for the week, its worst performance since March 2022 in the wake of Russia’s invasion of Ukraine.

The Milan stock exchange fell 2.8 percent, while the Frankfurt DAX finished 1.4 percent in the red. Outside the eurozone, London’s FTSE 100 fell 0.2 percent.

Macron’s gambit

European markets have been rattled by French President Emmanuel Macron’s stunning decision Sunday to call legislative elections after his centrist alliance was trounced by Marine Le Pen’s far-right National Rally in European Parliament elections.

Macron’s gambit has sparked a period of political uncertainty in the European Union’s second-biggest economy and across the bloc, where voting saw a shift away from the center.

READ: Far-right gains in EU election deal stunning defeat to France’s Macron

Leading French left-wing politician Raphael Glucksmann on Friday threw his weight behind a new coalition of the left in the run-up to the historic elections.

Le Pen pledged a national unity government if her party wins the polls, which will open on June 30, with the second round on July 7.

“A hectic week comes to an end in Europe, but this is certainly the first in a series of volatile weeks until the French election — where the only certainty is uncertainty both for France and for the EU,” Ozkardeskaya said.

The euro also retreated against the dollar.

“It is all about the situation in France,” Fawad Razaqzada, market analyst at City Index and Forex.com, told AFP.

Soaring borrowing costs

“The euro took a tumble amid ongoing political turmoil in France, something which also hurt European indices and undermined other risk-sensitive currencies,” he said.

READ: European stocks, euro drop as EU vote sparks uncertainty

In another sign of investors’ concerns about the snap election, the yield, or interest, on 10-year French sovereign bonds rose and the difference with Germany’s own borrowing costs widened the most in years.

“Soaring borrowing costs are already hitting the French government, as the perceived risk attached to a potential victory for the far right pushed the cost of sovereign debt higher,” warned Shore Markets analyst Joshua Mahony.

In Asia on Friday, the yen dropped against the dollar and Japanese shares rose after the Bank of Japan said it would trim its vast hoard of government bonds as part of a cautious move away from its long-running ultra-loose monetary policy.

The central bank also kept interest rates unchanged after a two-day meeting.