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The storm that hit European financial markets in the aftermath of the vote for the European Parliament shows no signs of abating. In fact, the response of the polls seems to have reversed the favorable trend with which investors had accompanied the assets of the Old Continent since the beginning of the year, allowing them to outperform the rest of the world after a long time. And what is worrying is not so much the results themselves – given that the advance of anti-European forces had been widely predicted and is probably not yet of such dimensions as to change the political balance in Strasbourg and Brussels – but rather the uncertainty that has arisen created in one of the leading countries like France with the calling of early elections by the president, Emmanuel Macron.
Volatility and elections
The hope of many operators is that the volatility phase can be resolved on July 7th, the date of the second round of the French consultations; in the meantime, however, there is suffering to be had: on the stock market as well as on government bonds, and on the entire continent without many distinctions. Starting from the stock market, yesterday’s session was characterized by sustained sales that hit Europe in an almost undifferentiated way: if Paris lost 2%, Frankfurt was no different (-1.96%), while Piazza Affari was awarded the little coveted “black jersey” with a drop of 2.18%, sliding to the lowest level for almost two months.
Sectors in the crosshairs
Securities in the financial sector, but also those linked to cars, have come under the scrutiny of investors, influenced to a large extent by the events surrounding the recent introduction of duties against Chinese manufacturers. For example, Stellantis left 2.8% on the ground despite confirming its objectives for 2024 and improving its dividend policy during the year.investor day. All this while New York, which was uncertain at the start, did not provide the help that could have been hoped for following further weak data on US prices (this time relating to production for the month of May) following the Federal Reserve meeting.
French electoral system and stock exchanges
Speaking specifically about the Paris Stock Exchange, but reasoning indirectly from a European perspective, Morgan Stanley explains that the French double-round electoral system makes the results difficult to predict and therefore fears that «securities with significant exposure to potential political changes will be penalized until the definitive data are clear.” At the same time, however, the US investment bank remains “bullish on European equities as a whole”, considers, at least for the moment, the risks linked to the French elections to be “rather specific for stocks and sectors” and is therefore waiting for greater clarity before resuming the favorable approach it had previously.
The impact on bonds…
In the world of bonds the situation is not dissimilar, although yesterday, in truth, the rise in government bond yields did not manage to compensate for the sharp reduction recorded the day before, reflecting the trend shown by US bonds after the inflation data and before of the Fed. Although growing, the ten-year BTp remained below the psychological threshold of 4% at 3.95%, while the spread with the Bund grew again to 148 basis points, thanks to the inflow of money towards German bonds in a phase in which risk aversion is prevalent.
