Sun, June 30, 2024 at 07:47

• 

  Kang-hoon

  • Hello Annie, today I want to discuss the recent downturn in the French stock market.

  • The CAC40 index has returned -8.8% in Q2, which is the lowest in two years.

  • 
• Annie

  • Oh no!

  • That's quite a drop.

  • What caused this decline?😟

  
• 

  Kang-hoon

  • The primary factor seems to be the speculation that Marine Le Pen's far-right Rally for the National Front (RN) could win the upcoming presidential election.

  • This has led investors to pull assets out of the French financial markets.

• Annie

  • Marine Le Pen?

  • Isn't she quite controversial?

  • How did the market react to this news?

  
• ADward

  • Hold on! Behold, an advertisement awaits. Legend has it that clicking on this ad will make the AI server even smarter... 😅

  
• 

  Kang-hoon

  • Indeed, she is.

  • The CAC40 index fell 0.7% on Monday, reaching its lowest level since January.

  • The decline has been significant since President Macron called for snap elections earlier this month.

• Annie

  • Wow, that's a steep decline.

  • How does this compare to other European markets?

  
• 

  Kang-hoon

  • The CAC40's performance against the Eurostoxx 50 was the weakest since the euro's inception.

  • The interest rate differential between French government bonds and German bunds also jumped to 0.85 percentage points, the highest since the 2012 European financial crisis.

• Annie

  • That's quite alarming.

  • What are the implications for French government bonds?

  
• 

  Kang-hoon

  • Investors fear that the next French government might increase spending, which could threaten EU financial stability.

  • 

  • This concern has already led to a downgrade of France's credit rating by S&P Global for the first time in 11 years.

• Annie

  • Oh dear, a credit rating downgrade is serious.

  • What about the European Central Bank (ECB)?

  • Are they planning to intervene?

  
• 

  Kang-hoon

  • German Finance Minister Christian Lindner has warned the ECB not to intervene if financial markets are disrupted post-election.

  • However, there is speculation that the ECB might use the Transmission Protection Instrument (TPI) if the sell-off in French government bonds spreads to other European countries.

• Annie

  • The TPI?

  • What's that exactly?

  
• 

  Kang-hoon

  • The TPI is an untested bond-buying program introduced by the ECB in July 2022 to stabilize member states' bond markets during political unrest.

  • However, there are arguments that France does not meet the criteria for this program due to its budget deficit exceeding the EU limit.

• Annie

  • So, France's budget deficit is a problem too?

  
• 

  Kang-hoon

  • Yes, the European Commission has proposed initiating an 'excessive deficit procedure' (EDP) against France as its deficit has reached 5.5% of GDP, well above the EU limit of 3%.

• Annie

  • This sounds like a complicated situation.

  • How has the euro been affected?

  
• 

  Kang-hoon

  • The euro depreciated 1.3% against the dollar in June, marking its biggest decline since January.

  • The unrest has already spread to Italian financial markets, pushing German bund yields to their highest since February.

• Annie

  • It seems like the entire European market is on edge.

  • What do experts say about this?

  
• 

  Kang-hoon

  • Ludovic Subran, chief economist at Allianz, mentioned that if France faces trouble, Italy is likely to follow, necessitating ECB intervention.

  • Similarly, Sabrina Canice from Pictet Asset Management believes the ECB will step in to defend the euro if the French risk escalates.

• Annie

  • Given all this, would you say this news is good or bad for the market?

  
• 

  Kang-hoon

  • This news is undoubtedly negative for the market.

  • The political uncertainty, coupled with financial instability, poses significant risks.

  • Investors should be cautious and consider the potential for further declines and volatility.

  • Upon comprehensive consideration, this news is perceived as a 😱Bearish.