A right-left, two-punch combination in the end proved too much for the Paris stock market when trading resumed after a momentous election in France. After early initial relief that it had dodged the prospect of victory by the hard-right party of Marine Le Pen, it was hit by fears of what a left-wing coalition might mean for the economy.
Early gains evaporated and the CAC 40 share index fell into the red, ending the day at 7,627.45, down 48.17 points, or 0.6 per cent.
It was the same story for shares in BNP Paribas and Société Générale, banks seen as key indicators of the French bourse, which rose strongly at first only to tumble from mid-morning. By the close, BNP Paribas was down €1.12, or 1.8 per cent, at €62.54 and Société Générale was off by 30 cents, or 1.3 per cent, at €23.38.
In choppy trading, however, French government bonds ended the day slightly stronger as the prospect of political deadlock softened fears of any significant fiscal loosening by the New Popular Front coalition, which unexpectedly won the most seats in Sunday’s election. The closely watched differential between German and French bond prices, seen as a measure of financial stress in France, narrowed very slightly.
The euro was also directionless, falling modestly against the US dollar and the pound, having rallied in the first few hours of trading. Sterling was fetching €1.1844, up by a fifth of a euro cent.
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Relief at Le Pen’s poor showing was tempered by concerns that the left would seek to unwind many of President Macron’s pro-market reforms and would make it more difficult to rein in France’s debt, which stood at 111 per cent of national output in 2023.
Jan von Gerich, chief market analyst with Nordea, a Scandinavian bank, said: “The economic programme of the left is in many ways much more problematic than that of the right and, while the left will not be able to govern on their own, the outlook for French public finances deteriorates further with these results.”
Voters took pollsters by surprise on Sunday in the second round of voting for the national assembly as the New Popular Front won the largest number of seats, with Macron’s centrist alliance coming second and the National Rally pushed into third place.
“The markets will be happy we’re avoiding this extreme situation with the far right,” Aneeka Gupta, director of macroeconomic research at WisdomTree, an asset manager, said. “It’s going to be very hard to actually go ahead and pass any policy and bring about any progressive reforms because each party’s vote is split and no one has an absolute majority.”
• French election: parties scramble after surprise result
• What the New Popular Front’s success means for France
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Claus Vistesen, at Pantheon Macroeconomics, a consultancy, said Macron was likely to have to appoint a left-wing prime minister and added that the New Popular Front would attempt to capitalise on its victory by pushing for more left-wing economic policies.
The drop into third place for National Rally, which was leading in the first round of voting a week ago, had been “a huge surprise”, according to Van Luu, a senior strategist at Russell Investments. “The market’s worst-case scenario of a far-right majority is averted, but uncertainty remains high and could continue to weigh on French financial assets.
“European financial markets are still sailing in choppy waters. Sunday’s result is not the catalyst for a sustained rally in French stocks and bonds, despite the latter looking heavily oversold.”
