Shock French left election win is little solace for nervous investors
Repeats Monday's story without changes
Left-led hung parliament vs far-right one seen making little difference
French budget deficit unlikely to fall, investors say
Focus turns to formation of government
By Yoruk Bahceli and Samuel Indyk
July 8 (Reuters) - A shock election win for France's leftist alliance has reinforced wariness among investors who had already braced for the risk of political deadlock and a policy paralysis that's unlikely to improve the country's creaking public finances.
The left-wing New Popular Front (NFP) alliance won the most seats in Sunday's election, but fell far short of an absolute majority, a big surprise after Marine Le Pen's far-right National Rally (RN) led opinion polls.
France, at the centre of the euro project and the bloc's second biggest economy, still faces a hung parliament and taxing negotiations to form a government as markets had already anticipated - just with the left in pole position, rather than the far-right.
The risk premium, or spread, for holdingFrance's debt over Germany's DE10FR10=RR was at 65basis points on Monday, a touch lower from Friday. It remains below the 12-year highhit in June at 85 bps.
Still, that gap is not expected to tighten again rapidly with concern fixed on what France's new political climate means for its stretched public finances that have left it facing European Uniondisciplinary measures.
Debt stood at 110.6% of output in 2023.
"For any budget to be passed in the new assembly, probably at the margin some fiscal loosening is required to get a compromise," said Kevin Zhao, head of global sovereign and currency at UBS Asset Management, which manages $1.7 trillion in assets.
Market relief proved tentative on Monday. France's main CAC 40 .FCHI stocks index, down 3.7% since Macron called the election, rose as much as 0.8% on Monday then gave up all its gain.
Shares in France's three biggest lenders - BNP Paribas BNPP.PA, Societe Generale SOGN.PA and Credit Agricole CAGR.PA - which have dropped as much as 9.8% since June 9, also reversed earlier gains and were down 0.4%-1.2% at 1418 GMT.
Banks had been hard hit in the run-up to the vote on concerns that higher political uncertainty would translate into increased economic risks and fears of possible windfall taxes.
With the left more than 100 seats short of an absolute majority and President Emmanuel Macron's centrist grouping in second place, a hung parliament was still seen as the best outcome for investors in French assets, with itexpected to limit the left's spending plans and avert a potential budget-driven market crisis.
The NFP's plans include scrapping Macron's pension reform raising the minimum wage and capping the prices of key goods.
It says the costs of its programwould be offset by measures including tax increases.
But some investors had deemed an NFP absolute majority a bigger threat to markets than the RN, as the left alliance has said it doesn't plan to reduce France's high budget deficit.
"When you look at the composition of the parliament, the bar for the far-left to start doing anything market unfriendly is very, very high," said Gabriele Foa, portfolio manager at Algebris Investments, noting that the more moderate Socialists won a sizable share of the NFP seats.
Possibilities for a new government include the NFP forming a minority government, Macron peeling off Socialists and Greens from the NFP to isolate Jean-Luc Melenchon's far-left France Unbowed for a coalition with his own bloc, or a technocratic government.
NO RESPITE
Still, a hung parliament was not seen by investors as good news for France's public finances and investors expected the country's budget deficit -- at 5.5% of output last year -- to stay elevated.
Melenchon said the NFP would execute its programme, while Socialist leader Olivier Faure said Macron's pension reform must be cancelled.
S&P Global Ratings warned on Monday that France's credit rating, which it recently downgraded, would come under pressure if economic growth falls short of projections or the budget deficit cannot be reduced.
Analysts do not expect the French/German bond spread to return to the roughly 50 bps level seen before Macron called the election.
"To be able to step (back into) French debt, will mean that we have guarantees from the government that they are taking good decisions to restore the fiscal and budgetary balances," said Matthieu de Clermont, head of insurance and regulatory strategies at Allianz Global Investors.
"I'm not sure we'll get that any time soon."
Some investors said the French-German spread could widen again if uncertainty drags on, raising the cost for France to borrow on international bond markets relative to its neighbours, potentially increasing pressure on the budget.
"The biggest risk other than near-term headlines is what happens with the EDP and negotiations with the European Commission," said Schroders fund manager James Ringer, referring to the EU's budgetary discipline measures.
Investors remained cautious on French assets as they said it was too early to gauge what a new government would look like. The risk of another election in a year's time is not ruled out.
"It is probably going to take weeks, if not months, before Macron and others sort out their alliances." said Anders Persson, chief investment officer, head of global fixed income at Nuveen, which manages $1.2 trillion in assets.
He remains underweight French government bonds.
CAC 40, French banks remain below pre-election levels https://reut.rs/45STuBP
Risk premium on French debt barely moves despite shock left-wing win https://reut.rs/3VVv8mr
Reporting by Yoruk Bahceli and Samuel Indyk; editing by Dhara Ranasinghe and Toby Chopra
免責聲明: XM Group提供線上交易平台的登入和執行服務，允許個人查看和/或使用網站所提供的內容，但不進行任何更改或擴展其服務和訪問權限，並受以下條款與條例約束：（i）條款與條例；（ii）風險提示；（iii）完全免責聲明。網站內部所提供的所有資訊，僅限於一般資訊用途。請注意，我們所有的線上交易平台內容並不構成，也不被視為進入金融市場交易的邀約或邀請 。金融市場交易會對您的投資帶來重大風險。
所有缐上交易平台所發佈的資料，僅適用於教育/資訊類用途，不包含也不應被視爲適用於金融、投資稅或交易相關諮詢和建議，或是交易價格紀錄，或是任何金融商品或非應邀途徑的金融相關優惠的交易邀約或邀請。
本網站的所有XM和第三方所提供的内容，包括意見、新聞、研究、分析、價格其他資訊和第三方網站鏈接，皆爲‘按原狀’，並作爲一般市場評論所提供，而非投資建議。請理解和接受，所有被歸類為投資研究範圍的相關内容，並非爲了促進投資研究獨立性，而根據法律要求所編寫，而是被視爲符合營銷傳播相關法律與法規所編寫的内容。請確保您已詳讀並完全理解我們的非獨立投資研究提示和風險提示資訊，相關詳情請點擊 這裡查看。
