French Stocks Decline Amid Budget Concerns and Tariff Fears

French equities fell to a three-month low on Wednesday, driven by domestic political uncertainty and lingering fears over U.S. trade tariffs under President-elect Donald Trump. Broader European markets also faced pressure as investors navigated an unsettled landscape.

Key Indices and Market Movement

• France’s CAC 40 index dropped over 1%, trailing its regional counterparts and reflecting the weight of political and fiscal concerns.
• The pan-European STOXX 600 index declined 0.3% by mid-morning, extending losses after ending a three-day rally on Tuesday.

French Markets Under Strain

• French lenders BNP Paribas, Societe Generale, and Credit Agricole fell between 2% and 3.4%, contributing to the CAC 40’s slump.
• French government bonds also suffered, with yields spiking to their highest premium since 2012, signaling increased borrowing costs.

Domestic Political Tensions

The market reaction is partly attributed to far-right leader Marine Le Pen’s threats to destabilize the government. Le Pen’s opposition stems from disagreements over austerity-driven budget proposals, including spending cuts and tax hikes, exacerbating investor unease.

Impact of U.S. Trade Tariff Proposals

Fears surrounding Trump’s tariff policies have weighed on European stocks, particularly automakers.

• Auto stocks were among the worst performers for the second consecutive session as Trump’s tariffs on Mexican imports threatened European carmakers with significant exposure to North America.

Notable Individual Stock Movements

• Spanish pharmaceutical firm Grifols slumped 11% following reports that Canadian fund Brookfield may abandon its takeover plans.
• Sweden’s Elekta fell 5% after underwhelming second-quarter earnings and order data.
• EasyJet shares rose 3.4%, buoyed by optimistic 2025 capacity forecasts.
• German consumer goods firm Henkel gained 3% after receiving an upgrade from JP Morgan.

Upcoming U.S. Inflation Data

Investors are closely watching U.S. inflation data due later on Wednesday. The report is expected to shape expectations for Federal Reserve policy, especially following meeting minutes that indicated caution in providing forward guidance on interest rate decisions.

Outlook

With a backdrop of political instability, looming tariffs, and mixed corporate results, European markets are set to remain volatile. Traders are likely to focus on upcoming economic data and clarity on U.S. trade and monetary policies for direction.