France's deepening budget crisis pushed the pan-European STOXX 600 to its lowest level since June and left the CAC 40 down more than 12% from its August peak. European bank stocks and global indices fell in sympathy as oil prices jumped and bond yields climbed toward multidecade highs.
Bond stress drags European shares to multi-month lows
The pan-European STOXX 600 fell 1% on Thursday, its lowest level since June, as renewed selling of French and other heavily indebted countries' debt spread across the region. France's CAC 40 dropped to a level more than 12% below its August record high in Paris.
Bank of France head Emmanuel Moulin acknowledged the country's economic situation was serious, though he said it did not need help from the European Central Bank. A trio of European Central Bank policymakers also issued fresh inflation warnings.
France's deficit and debt feed the selloff
France's budget deficit is set to reach 5.4% of gross domestic product this year, above the European Union's 3% limit, and the country has not run a balanced budget since 1974. Its debt has climbed to €3.5 trillion, or $3.92 trillion.
According to Deutsche Bank strategists Jim Reid and Henry Allen, the spread between French and German 10-year bond yields widened last week to its largest level since Bloomberg's data began in 1990. The CAC 40 is up just 4% since the start of 2024. Over the same period, the STOXX 600 has gained more than 30% and Germany's DAX has climbed over 50%.
Banks and global markets feel the strain
Europe's bank stocks fell too, with the finance index down nearly 2% as Deutsche Bank, Santander, Societe Generale and UniCredit all declined for a second straight day. Overnight in Asia, Japan's Nikkei shed 1.4%. South Korea's market slumped 2.6%, while Wall Street futures pointed to a modestly lower start.
Oil added to the pressure: Brent futures rose back above $104 a barrel in their biggest jump in a month amid attacks on Gulf shipping. Kiran Ganesh, a multi-asset strategist at UBS Global Wealth Management, according to Reuters, said: "Markets are going to be watchful if that contagion continues."
Sources: Economy News, MarketWatch
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