(Bloomberg) — Investors sought out haven assets as concerns over political turmoil in France deepened, with European stocks heading for their worst week in months and US equity futures weakening.
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The Stoxx 600 dropped 0.9% to extend losses since Monday to 2.3%, while France’s CAC 40 index erased its gains for the year. The S&P 500 and Nasdaq 100 are set to fall at the open after notching up record highs every day this week.
A gauge of the dollar strengthened 0.3%, while 10-year Treasury yields declined five basis points.
“It’s a risk-off tone with concerns over France driving the markets,” said Mohit Kumar, chief economist for Europe at Jefferies International. “Particularly going into the weekend, investors would be taking some positions off the table.”
Markets are increasingly anxious after French President Emmanuel Macron announced a snap legislative election following his party’s drubbing in the European Parliament elections. Investors fear a win for Marine Le Pen’s far-right National Rally party, which leads polls by a wide margin, will usher in looser fiscal policies.
On the opposite end of the political spectrum, a coalition of French left-wing policies presented a manifesto to pick apart most of Macron’s economic reforms.
The uncertainty has sent the premium France pays on its bonds relative to Germany soaring this week, on pace for the most on record, while the yield on two-year debt for Germany — the safest European sovereign — is set for the biggest drop since May 2023.
“It’s hard to ignore the parallels between our current situation and the time of the sovereign debt crisis, as there’s that familiar focus on election results, sovereign bond spreads and debt sustainability,” said Jim Reid, an analyst at Deutsche Bank AG. That’s “coupled with no obvious sign about where things are headed next.”
The week’s turmoil has wiped out all June’s gains for the European benchmark, with investors warning that the volatility may continue until the French vote is concluded next month.
“Elections in France tend to be more volatile for equity markets than other developed markets,” Beata Manthey, head of European equity strategy at Citigroup Inc., told Bloomberg Television. “This volatility could continue for a bit longer.”
Still, the current weakness doesn’t change the underlying strengthening in European earnings and the broader economy, she said.
Among US premarket movers, Adobe Inc. shares are set for their biggest gain in about four years after projecting strong future sales for its creative products. Meanwhile, Tesla Inc. investors voted for Elon Musk’s compensation package and moving the company’s state of incorporation to Texas.
In Asia, the Bank of Japan made investors wait until its July meeting for details on its paring of bond buying, leaving the yen vulnerable to further declines. While the central bank’s decision Friday to stand pat on interest rates was widely expected, traders were surprised by it just flagging a cut in debt purchases without laying out any figures or a timeline.
A “weak yen might weight down the flows from overseas investors in the summer,” said Hiromi Ishihara, head of equity investment at Amundi Japan. “That said, we still believe that BOJ is set to move a further hike this year.”
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.5% as of 8:16 a.m. New York time
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Nasdaq 100 futures fell 0.3%
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Futures on the Dow Jones Industrial Average fell 0.7%
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The Stoxx Europe 600 fell 0.9%
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The MSCI World Index fell 0.3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.3%
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The euro fell 0.5% to $1.0685
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The British pound fell 0.6% to $1.2691
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The Japanese yen was little changed at 157.06 per dollar
Cryptocurrencies
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Bitcoin rose 0.7% to $67,122.48
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Ether rose 1.2% to $3,517.15
Bonds
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The yield on 10-year Treasuries declined five basis points to 4.20%
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Germany’s 10-year yield declined 12 basis points to 2.35%
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Britain’s 10-year yield declined eight basis points to 4.04%
Commodities
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West Texas Intermediate crude rose 0.4% to $78.96 a barrel
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Spot gold rose 1.1% to $2,330.13 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu, James Hirai, Selcuk Gokoluk and Alice Gledhill.
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