Since the European Union parliamentary election results were released just over a week ago, seeing a rise in support for far-right parties and French President Macron’s surprise decision to call parliamentary elections, Eurozone shares have had a fall of 4.2%, French shares fell 6.2% and the gap between the French and German 10 year bond yields has increased by 29 basis points indicating that investors are demanding an increased premium to hold French debt. In fact, the gap between French and German 10 year bond yields is back to levels last seen around the 2017 French presidential election. There has also been some flow on to Italian and Spanish bond yields, the Euro and global and Australian shares, although strength in tech shares continued to support US shares.
Key points:
The success of far-right political parties in EU parliamentary elections & the calling of an election in France have boosted uncertainty by risking a return to the Eurozone crises.
However, centrist parties still dominate in Europe and support for the Euro is strong.
Far right success is consistent with a gradual drift towards bigger government & more protectionist economic policies.
Expect a more constrained and volatile ride from shares.
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