French assets still weak after Macron's election gamble
STOXX 600 up 0.3%
Bayer surges on court ruling
Wall St futures flat
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FRENCH ASSETS STILL WEAK AFTER MACRON'S ELECTION GAMBLE
When French President Emmanuel Macron called new legislative elections on June 9, French assets went into a tailspin as fear of a far-right or far-left government shook markets
But, even as worst-case scenarios were avoided, French assets have struggled to recover.
France's main stock index, the CAC 40 .FCHI is still down over 9% from when Macron called the election, versus around a 2% drop for the pan-European STOXX 600 .STOXX.
Much of that weakness is down to the performance of the banks.
France's three main lenders - Societe Generale, BNP Paribas and Credit Agricole - are down between 7.5%-19%.
The STOXX Europe 600 banks index .SX7P is down just 3.3% in that timeframe.
On the surface, the move in French bonds looks better. The yield on France's benchmark 10-year FR10YT=RR is down 16 basis points, indicating that there has been demand for French debt as bond yields move inversely with prices.
Yet, the spread between France's and Germany's 10-year yields DE10FR10=RR - a measure of risk premium that investors require to hold French bonds over German - stands at over 70 basis points, from around 50 basis points before Macron called the election.
That indicates that investors require greater returns to hold French bonds over their German counterparts.
With France's successful hosting of the Olympic Games now in the rearview mirror, Macron must now move quickly to name a new prime minister and prepare a budget that will be approved by parliament.
France remains under pressure from the EU as one of seven countries named that could be disciplined for running budget deficits in excess of EU limits. The deadline for reducing the gap is November.
"Fiscal concerns are likely to resurface at some point," said Mohit Kumar, Jefferies chief Europe economist, "but we see that as a post summer holiday's story."
One to keep an eye on through the second half of August.
(Samuel Indyk)
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