The euro experienced fluctuations in early trading on Monday, initially declining due to the recent French election results but later stabilizing. The elections resulted in a hung parliament, causing uncertainty regarding France's financial and monetary policies. Despite an early dip of 0.1% to $1.08235, the euro stabilized at $1.0842, reflecting traders' mixed sentiments about the political developments.
European stock markets also felt the impact of the French election results, with the STOXX 600 index falling by 0.1% and the French Stock Exchange dropping by 0.4%. Energy stocks were particularly affected due to falling oil prices. The unexpected rise of the left-wing New Popular Front coalition added to the uncertainty, hindering Marine Le Pen's efforts to bring the extreme right to power.
Investors were unprepared for the election outcome, which saw the left-wing union gaining a relative majority. This unexpected result caused a wave of uncertainty, leading to significant drops in banking sector stocks, including Société Générale, BNP Paribas, and Crédit Agricole. Companies with state concession contracts, such as Eiffage, Vinci, and ADP, also saw reductions in their stock values.
The French Treasury bond rate jumped from 3.09% to 3.22% on June 10, reflecting market nervousness. However, the results of the first round of the legislative elections on July 1 brought some relief, with the Parisian market rebounding by 1.09%. The spread between German and French borrowing rates, which had widened significantly, began to narrow again.
As markets opened on July 8, the 10-year OAT yield remained stable at 3.219%, and the 10-year German yield stayed unchanged at 2.533%. The spread between the two yields reached 69 basis points, indicating a cautious but steady investor sentiment in response to the new political landscape in France.
