LONDON — European stocks fell at the open on Monday as markets reacted to an expected hung parliament in France after a surprise win for a left-wing coalition of parties.
Initial reaction was relatively muted with the French CAC 40 slipping 0.4%, and the euro down 0.13% against the dollar.
The U.K.’s FTSE 100 index slipped around 0.3%, while Germany’s DAX and the FTSE MIB were both trading around the flatline. The pan-European STOXX 600 fell 0.1%.
France’s left-wing New Popular Front won the largest number of seats in this weekend’s parliamentary elections, scuppering an expected surge for the far-right. However, the coalition failed to secure an absolute majority, early data showed, leaving markets digesting the possibility of a hung parliament.
François Digard, head of French equity research at Kepler Cheuvreux, said a hung parliament was what the market was expecting.
“You have a hung parliament as expected so last week, the market has played this out … It was just expected to be more right-wing and at the end it is left-wing,” he told CNBC on Monday. “We believe that the reaction is going to be negative, both on the indexes and on the [bond yield] spread.”
Supporters of the left wing union, New Popular Front, gather at the Place de la Republique on July 7, 2024 in Paris, France following the defeat of the far-right in France’s legislative elections.
Nathan Posner/Anadolu via Getty Images
Meanwhile, Deutsche Bank strategists added that markets will be suspicious of the New Popular Front’s “fiscally aggressive” spending and taxation plans.
“Last night the far-left were already talking about wealth taxes and increases on taxes on corporates which won’t be market-friendly. However trying to build a government that has any kind of stability looks a very high bar this morning. Political paralysis for the next 12 months seems the most likely outcome,” they added.
It comes after a general election in Britain last week which saw the opposition Labour Party win a landslide victory, unseating the Conservatives after 14 years.
In corporate news, soft drinks maker Britvic has agreed a takeover bid of £3.3 billion ($4.2 billion) from Carlsberg, at an offer of 1,290 pence per Britvic share. This was an improved bid from Carlsberg which first offered 1,200 pence per share but was rejected.
There are no major corporate earnings due Monday. It’s also quiet on the data front, with just German trade data due.
In Asia-Pacific, stocks were mixed Monday. In the United States, futures ticked lower as investors looked ahead to inflation data for hints on this year’s market rally and the next steps by the Federal Reserve. The June consumer price index is due Thursday, with producer price index data due Friday.