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• As traders responded to the preliminary results of the EU vote and French President Emmanuel Macron's unexpected announcement for parliamentary elections, European markets plummeted.
• Bank shares had a strong decline, contributing to the 1.8% decline in the French CAC 40.
LONDON:
Monday saw a decline in European stocks as investors responded to the preliminary results of the elections for the EU Parliament and the unexpected announcement of legislative elections by French President Emmanuel Macron.
According to preliminary results of the EU election, populist and far-right parties may play a larger role in shaping European policy in the coming five years.
European market
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At 4:00 p.m., the pan-European Stoxx 600 index was down 0.5%. London time, with losses led by food and beverage companies, which fell 1.4%.
The euro fell 0.47% versus the British pound and 0.56% versus the US dollar.
After losing badly in the EU vote, French President Emmanuel Macron announced early legislative elections later this month, capping the dramatic election campaign. This was announced on Sunday night.
French banks saw significant declines after the shocking announcement, as the country's CAC 40 index fell 1.8% in afternoon trading. Shares of BNP Paribas and Societe General dropped 5% and 8%, respectively.
According to Johann Scholtz, an email analyst at Morningstar, investors are worried about the possibility of interventionist economic policies and more regulation from the nation's far-right National Rally party.
Macron’s gambit might result in large legislative gains or perhaps a majority for National Rally, political analysts warned Monday, giving the party power over domestic and economic policy.
Scholtz stated, "Banks have turned into a soft target for populist measures like windfall taxes and restrictions on dividends/share buybacks in many European jurisdictions."
He said that French banks who hold a significant amount of sovereign bonds have suffered from the increased dispersion of French government bonds following the elections. In general, larger yield spreads indicate risk aversion.
The unexpected outcome of the French election was what "spooked the market" on Monday, according to strategists at Barclays, considering that the center-right maintained its majority in the European Parliament and that far-right advances had been widely anticipated.
However, "the most likely outcome appears to be another hung parliament/coalition for Macron," as there is still a long way to go until the National Rally obtains an outright majority (289 seats).
In other news, investors will be anticipating the release of additional U.S. inflation data on Wednesday in addition to the Federal Reserve's upcoming meeting. Both follow the announcement last Friday of a better-than-expected U.S. jobs report, which showed hiring and wage growth increased up in May.
It strengthens the idea that the Fed will take its time reducing interest rates. The Federal Open Market Committee is not expected to lower interest rates at this week's meeting or the one that follows in July, according to traders.
Asia-Pacific markets had mixed overnight trading, with some—including those in Australia, mainland China, Hong Kong, and Taiwan—closing for the holiday Monday.
U.S. equities had a positive week, but they were little lower in early trading on Monday.
