French banks were some of the hardest hit, with BNP Paribas, Credit Agricole and Societe Generale all tumbling between 4.5%-7.4%.
It’s a big negative shift after what had been looking like a more positive outlook for Europe.
The European Central Bank last week began lowering borrowing costs after its steepest ever tightening cycle, inflation has been drifting back towards target and surveys have indicated growth may have bottomed.
In contrast, the Federal Reserve looks like it could refrain from cutting interest rates until the fourth quarter, growth appears to be shaky – albeit after more robust growth at the start of the year – and inflation looks stickier.
So just as global investors had been warming to European markets, the election results and heightened political uncertainty may bring about a shift in sentiment.
At least for now, that’s evident. France’s main CAC 40 stock index was down 1.9%, dragging other European markets lower. Germany’s DAX, Britain’s FTSE 100, Spain’s IBEX and Italy’s FTSE MIB were all off between 0.4%-1%.
Yet U.S. futures were relatively unperturbed. E-mini S&P futures are down around a quarter of one percent, while futures on the Nasdaq are lower by a similar amount.
French bonds are similarly as unloved as the equity market.
The spread between France and Germany’s 10-year yields, a gauge of risk premium investors seek to hold French bonds over German paper, widened over 6 basis points.
The euro was down 0.4% against the dollar to its lowest level in a month.
