The CAC 40 Index has slumped in the past few days as concerns about the country’s political crisis has continued. It has slumped to a low of €7,740, down by 3.28% from its highest point this month. This article explores what to expect now that bond yields have jumped.
Why French stocks have plunged
The CAC 40 Index has plunged in the past few days, moving from a high of €8,000 in August to a low of €7,740. The crash happened as investors reacted to the ongoing political crisis that could see the Prime Minister, Francois Bayrou, lose his job in the near term.
Bayrou is the country’s fifth prime minister since 2020. He took over from Michel Barnier, who was the prime minister between September and December last year. Gabriel Attal was the premier between January and September last year, while Elisabeth Borne lasted for two years.
The ongoing political crisis is primarily driven by the country’s fiscal situation as the debt pile continues rising. As a result, the government has attempted to implement some reforms that will help it to reduce spending.
Like Italy, it has attempted to implement fiscal discipline, which has led to substantial protests. As a result, with no end in sight, borrowing costs have surged even as the European Central Bank has slashed interest rates in the past two years.
Read more: Top CAC 40 shares to watch: LVMH, BNP Paribas, Vivendi and more
Data shows that the 10-year bond yields has jumped to 3.56%, its highest level since March 17. Similarly, the five-year yield has risen to 2.85%. In contrast, the German 10 year yield has risen to 2.7% and the five-year has risen to 2.30%.
The rising government bond yields have made stocks less attractive, with many investors rotating to the bond market.
Meanwhile, the index has been affected by the ongoing performance of the Chinese market. French stocks are more exposed to the Chinese market because most of them do a lot of business there.
Some of the most exposed firms are luxury brand firms like LVMH, Kering, and Hermes. Kering’s stock has dropped by 4% this year and 53% in the last three years.
Hermes, often seen as the gold standard of the industry, has dropped by 10% this year, while LVMH has slumped by 20% this year.
Other companies exposed to China like Pernod Ricard and Accor have also slumped. Capgemini’s stock price has plunged by 23% this year as demand for tech consulting has waned.
Some of the top laggards in the CAC 40 Index are companies like Carrefour, Renault, Stellantis, and Publicis Groupe.
On the other hand, the top gainers in the index are companies like Legrand, Safran, Thales, Vinci, Société Générale, and BNP Paribas.
CAC 40 Index technical analysis
The daily chart shows that the CAC 40 Index has pulled back in the past few days, moving below the 50-day and 25-day moving averages. It formed a triple-top pattern at €7,956 and a neckline at €7,500.
The most likely scenario is where the stock drops further ahead of the vote of no confidence. If this happens, the next point to watch will be at €7,500. A move above the resistance point at €7,956 will invalidate the bearish outlook.
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