- Eurostoxx -0.8%
- Germany DAX -0.7%
- France CAC 40 -1.1%
- UK FTSE 100 -0.5%
- Spain IBEX -1.2%
- Italy FTSE MIB -1.0%
It’s rough out there in Europe to start the week, with major indices firmly in the red at the open. That is in contrast to what we’re seeing in US futures, which are enjoying a decent bounce following last week’s heavy losses. So, what’s the deal with Europe today?
Well, the violent protests in France over the weekend are adding another layer of uncertainty to an already difficult political and fiscal situation. And that unease is also being clearly reflected in the bond market at the moment. The yield spread between French and German 10-year government bonds has widened back to around 145 bps, as investors continue to demand a hefty premium to hold French debt over its German counterpart.
That is hardly a comforting sign for a country already struggling with ballooning public debt and a difficult political environment heading into next year’s presidential election. If anything, the bigger concern is not so much the riots themselves. It is what the growing public discontent could mean for the government’s ability to push through much-needed fiscal reforms.
And with the protests also spreading to other parts of Europe, it is perhaps little surprise that regional stocks aren’t sharing the enthusiasm from US futures today.
As we get into the new week, keep a watchful eye on the French-German yield spread. If that widens beyond the 150 bps mark, it would be a damaging signal to risk sentiment as it shows that investors are growing even more nervous about France’s fiscal outlook. And that could very well leave European stocks struggling to find much relief, even if US stocks manage to stage a more convincing recovery.
This article was written by Justin Low at investinglive.com.