(Bloomberg) — Investors sought safe-haven assets as concerns grew about political unrest in France, with European stocks heading for their worst week since October and U.S. stock futures weakening.
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The Stoxx 600 index fell by 1.2%, extending its losses since Monday to 2.6%. France's CAC 40 index erased its gains for the year, with bank stocks such as BNP Paribas SA and Société Générale among the biggest losers.
The S&P 500 and Nasdaq 100 are set to open lower after hitting record highs each day this week. The dollar gauge rose against major global currencies, while Treasury yields fell three basis points.
“It's a risk-off tone with concerns about France leading the markets,” said Mohit Kumar, chief economist for Europe at Jefferies International. “Especially heading into the weekend, investors will be taking some positions off the table.”
Markets are increasingly concerned after French President Emmanuel Macron announced early legislative elections after his party's defeat in the European Parliament elections. Investors fear that the victory of the far-right National Rally party led by Marine Le Pen, which is leading in opinion polls by a large margin, will lead to more flexible fiscal policies.
Uncertainty has seen the premium France pays on its bonds compared to Germany rise this week, the largest on record, while the yield on Germany's two-year debt – the safest country in Europe – is set to post its biggest drop since May. 2023.
“It is difficult to ignore the similarities between our current situation and the time of the sovereign debt crisis, where there is this familiar focus on election results, sovereign bond spreads and debt sustainability,” said Jim Reed, an analyst at Deutsche Bank AG. This is “coupled with the lack of a clear indication of where things are headed next.”
The week's turmoil wiped out all of the European index's June gains, with investors warning that volatility could continue until the French vote ends in July.
“Elections in France tend to be more volatile for equity markets than in other developed markets,” Beata Manthey, head of European equity strategy at Citigroup, told Bloomberg TV. “This volatility may continue for a little longer.”
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In Asia, the MSCI Asia-Pacific Index fell as losses in Australian and Chinese stocks offset gains in the Japanese index.
The Bank of Japan sparked renewed weakness in the yen after it made investors wait until its July meeting for details on tapering bond buying, a move also seen as a delay in policy normalization. However, Governor Kazuo Ueda disputed the view that a rate hike is no longer possible next month.
“A weak yen may weigh on inflows from foreign investors in the summer,” said Hiromi Ishihara, head of equity investment at Amundi Japan. “However, we still believe the Bank of Japan is set to hike rates further this year.”
Main events this week:
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Chicago Fed President Austin Goolsbee speaks Friday
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Consumer confidence index from the University of Michigan, Friday
Some key movements in the markets:
Stores
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S&P 500 futures were down 0.6% as of 7:08 a.m. New York time.
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Nasdaq 100 futures fell 0.3%
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Dow Jones Industrial Average futures fell 0.8%
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The Stoxx Europe 600 index fell by 1.2%.
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MSCI World Index fell 0.3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.3%.
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The euro fell 0.4 percent to $1.0695
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The British pound fell 0.5 percent to $1.2702
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There was little change in the Japanese yen at 157.05 to the dollar
Digital currencies
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Bitcoin rose 0.1% to $66,750.07
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Ethereum rose 0.8% to $3,504.94
Bonds
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The yield on the 10-year Treasury note fell three basis points to 4.21%.
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The yield on 10-year German bonds fell by 10 basis points to 2.37%.
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The yield on British 10-year bonds fell seven basis points to 4.06%.
Goods
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There was little change in West Texas Intermediate crude
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Gold rose in spot transactions by 1 percent to $2,327.86 per ounce
This story was produced with assistance from Bloomberg Automation.
–With assistance from Winnie Hsu, James Hirai, Selcuk Gokolluk, and Alice Gledhill.
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