The Paris Stock Exchange down and interest rates up following the dissolution of the National Assembly

After the historic score of the National Rally in the European elections, the Head of State took everyone by surprise by calling early legislative elections. The market reaction is a sign of concern among financial operators.

How are the financial markets reacting to the European elections on Monday June 10? First element of response, Paris opened the session with a fall of 2.37% before recovering a little. It was expected. Investors reacted strongly to the announcement on Sunday evening by the President of the Republic, Emmanuel Macron, of the dissolution of the National Assembly. As for the other European markets, hit as a whole by the surge of the extremes and the Eurosceptics, the decline is also current, but less sharp: Frankfurt loses 0.7%, Milan 0.8%, Amsterdam 0, 4% and Brussels 0.9%.

The stock market is falling, but interest rates are rising. OAs we noticed early in the morning, the gap quickly widened between the German rate, the Bund, and the French Treasury Assimilable Bond (OAT). The OAT is what the State borrows as money to repay its debt. This means that the remuneration demanded by those who buy our debt is higher. This rate gap increases by more than five basis points, or approximately +0.05%. The ten-year rate stood at 3.16% on Monday morning, an increase that was ultimately limited, but emblematic. And the euro is falling against the dollar, which is the safe haven par excellence in such cases, 1.0757 dollars per euro, this is its lowest level in a month.

The Paris Stock Exchange, down just under 2% this morning, is a sign of concern among financial operators. Markets hate uncertainty, and even more so instability. However, the period which is opening hardly inspires tranquility. The current reforms, which rather appealed to investors, are frozen (the texts on administrative simplification and the Labor Law planned for September, for example). The unemployment insurance reform is not affected, because it must be passed by decree.

Regardless of political ups and downs, the fundamentals of the French economy remain solid: high debt, certainly, but guaranteed repayment capacity by the State; stable unemployment rate close to full employment; proven industrial attractiveness internationally, etc. Obviously, the prospect of the arrival of the National Rally in Matignon shocks investors more than the latest downgrading of the French debt rating by the Standard and Poor’s (S&P) agency.