Crunch time in Paris
STOXX 600 down 0.1%
Miners lead, travel & leisure lags
EZ CPI edges up
US futures higher
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CRUNCH TIME IN PARIS
It's crunch time in France with budget worries returning to spook markets this week on fears the government could collapse if concessions are not made on spending and tax plans to the partners propping up the coalition.
Positive noises surfaced on Thursday and Barclays believes that the government might try to find some last-minute compromises with the far-right RN to avoid a government collapse.
This could provide potential relief for markets which have embedded a risk premium in French assets.
The spread between French and German 10-year yields DE10FR10=RR hit its highest since 2012 earlier this week at 90 bps, while France's CAC 40 .FCHI is down 5% this year, compared to a 16% rise for Germany's DAX .GDAXI.
Should the government fall, Barclays believes the OAT-Bund spread could widen further towards 100 bps and the CAC fall 4%-5%. Should an agreement be reached, Barclays believes the spread could tighten to 70-75 bps and the CAC could rise 2%-3%.
In equities, Barclays believes rate-sensitive plays could bounce if spreads tighten.
"However, any relief in the case of an agreement on the budget would likely be short-lived, in our view, as concerns about political instability and long-term fiscal trajectory may persist," they say.
"Although market stress in France hasn't spread to the rest of the region, this is still unhelpful for sentiment towards the Eurozone. As per our 2025 outlook, US exceptionalism remains the playbook."
Within Europe, Barclays favours exposure to exporters and dollar earners over domestic plays.
(Samuel Indyk)
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FRIDAY'S OTHER LIVE MARKETS POSTS:
STOXX 600 STEADY; INFLATION IN FOCUS CLICK HERE
EUROPE BEFORE THE BELL: FUTURES SOFT BEFORE INFLATION DATA CLICK HERE
YEN BULLS CHARGE AHEAD AFTER TOKYO INFLATION DATA CLICK HERE
Core inflation in Japan's capital accelerates in November https://reut.rs/4eQcELt
European shares mostly lower, France underperforms https://reut.rs/3V7zUNW
Barclays French exposure https://tmsnrt.rs/4g9QUve
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