French Stocks Plummet Amid Political Uncertainty

The benches of ministers are seen inside the National Assembly, Tuesday. (AP Photo/Michel Euler)

French stocks started dropping in early trading following Sunday’s election results, leaving France’s National Assembly without a clear majority for any political group. The outcome has raised concerns about political stability and economic reforms in one of Europe’s largest economies.

According to reporting by The Associated Press, the CAC-40 index of large French companies opened 0.4% lower at 7643.03 on Monday morning. The euro also weakened against the dollar, falling to $1.0819 from $1.0836.

While the markets’ worst fears of a majority for the left-wing New Front National or the anti-immigrant National Rally were not realized, France now faces weeks of uncertainty. Prime Minister Gabriel Attal announced his resignation, signaling potential difficulties for any new government to pass legislation and make crucial spending decisions.

Holger Schmieding, chief economist at Berenberg Bank, expressed concern about the election results. “That the left has become the strongest group in parliament raises serious concerns,” he told AP. “France is heading for a period of political uncertainty and – most likely – for fiscal problems and some reversal of President Emmanuel Macron’s pro-growth reforms.”

In contrast, US stocks reached new records on Friday, buoyed by a highly anticipated jobs report. The S&P 500 climbed 0.5% to 5,567.19, setting an all-time high for the third consecutive day. The Dow Jones Industrial Average rose 0.2% to 39,375.87, while the Nasdaq composite added 0.9% to 18,352.76.

The US jobs report revealed that employers hired more workers than economists expected in June but at a slower pace than in May. The unemployment rate unexpectedly increased, and wage growth slowed. These factors reinforced the belief on Wall Street that the US economy’s growth is decelerating under the weight of high interest rates.

This slowdown is seen as potentially positive for financial markets, as it could help control inflation and encourage the Federal Reserve to consider cutting its main interest rate later this year. The two-year Treasury yield, which closely tracks expectations for Fed action, fell to 4.60% from 4.71%.

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