European Stocks Drop as France Turmoil Lifts Equity Volatility

European stock markets extended losses, as concerns around the upcoming French election sent equity volatility to the highest since October.

Europe’s Stoxx 600 slipped 0.2% as of 11:50 a.m. in London, ceding an early gain, while France’s CAC 40 also handed back most of its opening 1% jump to trade 0.1% higher. The Paris index slid last week to the lowest since January, shedding more than $200 billion in value and losing its spot as Europe’s biggest equity market, after President Emmanuel Macron called a snap election.

Markets appear unconvinced by far-right leader Marine Le Pen’s assurances that she will respect France’s political institutions if she wins the election. The vote is widely expected to make her National Rally become the biggest party in the lower house, a prospect which has caused alarm among investors. 

“If the election yields the outcome implied by the polls, risk premia are set rise further,” Wolf von Rotberg, equity strategist at Bank J. Safra Sarasin, said, after a gauge measuring potential market swings extended its rise. 

While some, including Liberum, saw the worries and selloff as overdone, Citigroup downgraded the region’s rating and upgraded US stocks.

Von Rothberg noted that in addition to the political concerns, the favorable backdrop enjoyed by European banks was also coming to an end as policy easing threatens to erode interest income. Many lenders are also heavily exposed to the selloff in French government bonds.

“European banks are unlikely to outperform, in our view. This should also weigh on European equities’ relative performance,” he added.

Technology and autos sectors led gains on Monday, while basic resources lagged. Among single stock movers, SSP Group PLC shares dropped after Goldman Sachs cut the stock to sell. Karnov Group slumped after Greenoaks and Long Path withdrew its offer following the closing of the offer period. EssilorLuxottica shares rise as much as 3.2% after UBS upgrades the French eyewear maker to buy from neutral.

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Published: 17 Jun 2024, 11:19 PM IST

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