Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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Deja vu: France on the brink, again
Neil Wilson
Investor Content Strategist
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We have yet to hear from Macron – it could mean he’s weighing up his options carefully and we could see new elections.
The market needs fresh elections to (hopefully) clear away the uncertainty that is affecting French assets and arguably is making global investors look cautiously on European assets in general.
Macron has now installed three failed governments since the inconclusive elections of 2024. The pressure is acutely political but it’s born out of a financial mess. The country has a massive budget of 5.8% in 2024 and debt to GDP of 113%.
A new election of sorts is inevitable because the current system is not working. The question for investors is whether France is worth the risk right now? If there are elections investors should be ready for National Rally to take control of the government.
Key Points
- French Prime Minister Sebastien Lecornu resigns after just 28 days in office, taking financial markets by surprise
- French stocks and bonds drop as budget crisis worsens, with pressure on the euro ensuing
- President Macron has now installed three failed governments in a year and new elections seem inevitable
Deja vu: French Prime Minister Sebastien Lecornu resigned, taking financial markets by surprise. Even Liz truss lasted longer. The move signals the end of the fifth prime minister in two years and third failed government appointed by Macron since the inconclusive 2024 parliamentary elections. It also signals that France is finding it impossible, with the current parliamentary arithmetic, to pass a budget this year to try and get control of its ballooning deficit.
French stocks sold off with banks leading a trail of losses on the CAC, which was down 2% at the lows of the day before clawing back a bit of ground to trade about 1.5% lower. French bond yields spiked higher and the spread with bunds moved to its highest this year and is nearing the worst it’s been since the Eurozone sovereign debt crisis. The wobbles in the French bond market is weighing on the euro and could suggest deeper problems for the euro area.
French stocks sold off with banks leading a trail of losses on the CAC, which was down 2% at the lows of the day before clawing back a bit of ground to trade about 1.5% lower. French bond yields spiked higher and the spread with bunds moved to its highest this year and is nearing the worst it’s been since the Eurozone sovereign debt crisis. The wobbles in the French bond market is weighing on the euro and could suggest deeper problems for the euro area.
Options for Macron: pas bon
1 – Try again: Appoint new prime minister to try one last time to push the budget through. Bound to fail again.
2 – New parliamentary elections...Marine Le Pen’s National Rally is already the largest party and leads the polls, so this is fraught with risk for the president, albeit a decisive win and government with a mandate from the people is exactly what’s required.
3 – Resign and call presidential election, which is currently not due to take place until 2027. This is also loaded with risk but Macron could take this ‘nuclear’ option to challenge the Left and Right head on.
We have yet to hear from Macron – it could mean he’s weighing up his options carefully and we could see new elections.
The market needs fresh elections to (hopefully) clear away the uncertainty that is affecting French assets and arguably is making global investors look cautiously on European assets in general.
Macron has now installed three failed governments since the inconclusive elections of 2024. The pressure is acutely political but it’s born out of a financial mess. The country has a massive budget of 5.8% in 2024 and debt to GDP of 113%.
A new election of sorts is inevitable because the current system is not working. The question for investors is whether France is worth the risk right now? If there are elections investors should be ready for National Rally to take control of the government.
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