European stocks slide as French politics spark uncertainty

European stocks declined on Monday following French President Emmanuel Macron’s announcement of a snap election, prompted by a heavy loss to the far-right in the European Union vote, heightening concerns about the interest rate outlook, according to Reuters.

France’s CAC 40 index dropped 1.8 per cent to reach a more than three-month low, with major lenders like BNP Paribas, Societe Generale, and Credit Agricole falling between 4.3 per cent and 7 per cent.

This decline marked the CAC 40’s largest daily percentage drop since July 2023. Additionally, French bond prices fell, leading yields to rise to their highest in two weeks as Eurosceptic nationalists gained ground in the European Parliament elections.

Macron’s decision to call a snap national election added to market uncertainty. The pan-European STOXX 600 index fell 0.6 per cent, while Germany’s DAX and Spain’s IBEX were down 0.7 per cent and 0.6 per cent, respectively.

Investor concerns were further fueled by a stronger-than-expected US jobs report on Friday, raising doubts about the Federal Reserve’s interest rate policies. Traders are currently pricing in rate cuts of 37 basis points from the Fed by year-end, with a 45 per cent chance of a first cut in November.

Meanwhile, the European Central Bank’s recent 25-basis-point rate cut to 3.75 per cent did little to reassure markets, with traders scaling back expectations for further cuts this year.

ECB policymaker Peter Kazimir suggested that the central bank should wait until after the summer before considering another rate cut due to lingering inflation concerns.

Individual stocks also experienced movement, with UK insurer Aviva sliding 1.5 per cent after a downgrade from JPMorgan, while Finnish chemicals company Kemira climbed 4% after raising its full-year earnings outlook, citing continued market recovery.