BNP Paribas SA and Societe Generale SA, two major French financial institutions, faced a significant decline of more than 5% on June 10, potentially due to President Emmanuel Macron’s unanticipated call for an immediate election. This move, a response to Europe’s disappointing parliamentary vote turnout, sparked fears about the stability of the French economy and led to an instant market reaction.
Macron’s decision stoked uncertainties within the market, further deepened by the possibility of significant economic policy changes. The tension is palpable as investors adopt cautious stances, hinting at potential long-term impacts. The effects of this sudden change reverberated through European equity markets, impacting most sectors.
By 9:43 a.m. Paris time, the Stoxx 600 Index had dropped 0.6%, while the CAC 40 Index fell a more significant 2.4%. The most notable hits were taken by French construction, materials sectors, and banking stocks. The volatile geopolitical landscape has effectively disrupted the European Union’s strongest economies, causing a domino effect in the market.
Alexandre Hezez, the Group Richelieu’s Chief Investment Officer, voiced his concerns about the durability of French public finances and the havoc it may wreak on the banking sector.
French banks’ downfall post Macron’s election announcement
He reiterated that the sector is projected to be the hardest hit and expressed reservations about the shifting complexities in France’s reform efforts and the sustainability of its debt.
The unexpected call for an election prompted the euro to plummet to a monthly low. Global Market Strategist at JPMorgan Asset Management, Vincent Juvyns, added that France might soon grapple with excessive deficits. Macron’s proposal, viewed as a divergence from traditional fiscal discipline, sparked worldwide reactions and concerns over a potential Eurozone economic slump.
Political instability in Europe may exert additional pressure on the Euro, particularly with parliamentary vote losses experienced by France and Germany. Juvyns hinted at an increasing discrepancy between France’s and Germany’s sovereign debts. This issue could further strain the shared currency and intensify concerns over the sustainability of their public finances.
Meanwhile, the European Union’s potential tariff imposition on imported electric vehicles from China is catching investors’ attention. Germany’s Chancellor, Olaf Scholz, warned that such a move could disrupt competition in the burgeoning electric vehicle market. Experts suggest bolstering the EU’s electric vehicle industry and improving infrastructure may be more beneficial than imposing tariffs.
