London Reclaims Market Leadership Amid French Political Unrest

In a notable turn of events, London has regained its status as Europe's premier equity market, overshadowing France, which has been plunged into turmoil by political uncertainty. 

The French benchmark index, the CAC 40, experienced a significant decline, falling 6.23% last week and reaching a five-month low. This downturn erased approximately €187 billion in market value, reflecting growing concern among investors. At the same time, the euro weakened, dipping to just above 1.07 against the US dollar, its lowest in six weeks, as the political landscape cast a shadow over market sentiment.

The shifting investor confidence triggered a flight to safer assets. The US dollar, gold, and the Swiss franc saw gains as market participants sought refuge from the potential risks stemming from the European Union's political climate. 

France's fiscal outlook is concerning. The country’s debt-to-GDP ratio is expected to hit 112.4% in 2024, the second highest in the Eurozone after Italy. The spread between French and German government bond yields surged to 81 basis points, the widest gap since August 2012. 

This difference highlights the growing investor caution surrounding French bonds, exacerbated by a 24 basis point drop in the French 10-year bond yield following calls for a snap election.

Ratings agencies are concerned. S&P Global downgraded France’s credit rating, reflecting a projected deficit of 3% of GDP until 2027. Moody’s has also warned of a "credit negative" outlook for France.