Since French President Macron called early elections, the European benchmark EuroStoxx 50 index has fallen almost 4%. More than 35% of the EuroStoxx 50 corresponds to French companies.
Since Macron’s announcement, the French stock market has lost almost 200 billion euros.
But other indicators in Europe are also affected by uncertainty about France’s future. The sharp falls suffered by the CAC40 index have stripped the French stock market of its leadership as the largest market in Europe, with the result that the London Stock Exchange now occupies hegemony.
At the same time, Wall Street’s S&P 500 registered a rise of 17.5%, compared to 6.8% for the Stoxx 600, which represents large, medium and small capitalization companies in 17 European countries.
These losses in European stocks opened up the biggest annual gap between the gains of the S&P 500 and the Stoxx 600, with a seven-point difference in favor of the US index.
None of the main European indices recorded double-digit annual gains after recent falls, with Spain’s Ibex 35 and Italy’s Ftse Mib recording the biggest gains on the continent, rising 8%.
The fear index
The VDax (known as the German stock market fear index) reflects the same development. The fear index linked to the S&P500 rose more than 13 points. “European stock exchanges are succumbing to the French electoral process, which is precipitating the main indicators of the Old Continent, causing market volatility to reach new highs for the year”, emphasize market players in Nautemporiki. “The difference is even greater compared to stability on Wall Street, as the spread between the two markets reaches levels not seen since the start of the war in Ukraine in 2022,” the same sources added.
The volatility index linked to the EuroStoxx 50, or VStoxx, exceeds 20 points for the first time this year and reaches its highest point in October 2023. “That is, the index that captures the sudden movements of the European stock market with based on futures, options appear to be risk averse due to events on the Old Continent”, point out market participants.
Debt instability
European government bonds were also separated into the secondary market from US debt. Although US 10-year bond yields are falling, European debt market volatility is increasing as political developments on the Old Continent increase credit risk.
Cboe’s iTraxx European Volatility Index, which reflects expected volatility in Europe’s debt over the next 30 days, is also at its highest level since last October.
Europeans prefer Wall Street
Although elections are also being held in the United States this year, this event has not affected the market so far. In contrast, early elections in France on June 30 and July 7 are roiling markets.
In fact, these are the second early elections on the Old Continent in just 20 days, with Great Britain following suit. Rishi Sunak has called an early election for July 4 following the Conservative Party’s worst local election results in almost 40 years. “The two countries have a common denominator that could be extended to most of Europe: they face economic problems and there is discontent among citizens. A negative spiral that is difficult to deactivate is fertile ground for political instability”, explains Luis Francisco Ruiz, analyst at CMC Markets.
Many European investors are now beginning to see greater advantages in the US market. “The North American stock market will continue to outperform the European stock market, which is currently experiencing a slowdown. In sectoral terms, we also believe that the technology sector will continue to lead the increases due to the results and expectations of cuts in interest rates”, emphasize the market players in “N”.