French stocks fall in morning trade after violent protests and unrest in the country. The CAC 40 index fell 1.21% to 7,860.48 points, after preliminary signals pointed to a 0.36% drop at the opening. Pressure on the Paris stock exchange increased amid concerns that political instability could make it difficult to pass the budget and increase France's financing costs.
The euro also weakened, losing 0.1% to $1.1230. According to Kieran Williams, head of currency analysis at InTouch Capital Markets, the effects of the unrest are being felt on the common European currency mainly through French bonds. “Appetite for the euro is likely to remain limited this week, and its appreciation will be used for selling until there is a clearer outcome on the budget“, he commented.
The yield on French government debt reached its highest levels since 2002 in October, and the difference with German bonds is nearly 140 basis points. It is this spread that investors monitor as an indicator of the perceived risk in French finances. French stocks are already lagging the broader European market, and the new wave of tensions is increasing pressure on the banking sector and companies dependent on domestic consumption.
The unrest has heightened political risk
The protests began over high prices, rising fuel prices and deteriorating public services, but on Saturday they escalated into clashes, looting and arson in Paris, Marseille, Lyon and other cities. More than half a million people took part in the demonstrations in dozens of towns. According to French Interior Minister Laurent Nunes, about 2,400 people were detained and nearly 1,000 police officers were injured. One protester died after suffering a cardiac arrest during the protests in Paris.
In Limoges, the town hall was set on fire and hundreds of shops were damaged or looted. Carrefour CEO Alexandre Bompard told BFMTV that 50 of the chain's stores were affected, with 20 of them looted. He said the damage amounted to tens of millions of euros. Economy Minister Roland Lecuyer said the perpetrators should bear the cost of rebuilding.
Macron rejects resignation of interior minister
President Emmanuel Macron condemned the violence but made a distinction between peaceful demonstrators and groups that attacked public buildings and businesses. "Nothing justifies it, nothing explains it and nothing excuses it," he said in a televised address.
Macron rejected the resignation of Interior Minister Laurent Nunes, and Prime Minister Sebastien Lecornu is to chair a crisis meeting on the aftermath of the unrest. Investors will be watching to see if the government can contain the tensions and push through fiscal measures at a time when France is under pressure over high debt and the upcoming presidential election.