Francois Bayrou proposed a confidence vote to break an impasse over his proposed budget cuts (Thibaud MORITZ)
European stock markets and shares in French banks fell Tuesday as investors fretted over fresh political turmoil in France.
The Paris stock market tumbled and French borrowing costs rose over fears that France’s minority government could be toppled, after Prime Minister Francois Bayrou proposed a confidence vote to break an impasse over his proposed budget cuts.
“Delaying or ditching (fiscal) reforms will make the debt situation more untenable and weigh on the economy,” said Neil Wilson, UK investor strategist at Saxo Markets.
Shares in French banks sank, with BNP Paribas down around five percent while rival Societe Generale shed more than eight percent — both major lenders hold French government debt.
“The question now is whether this develops into a broader drag on European assets or remains a distinctly French affair,” said Fawad Razaqzada, market analyst at StoneX.
London and Frankfurt were down in afternoon trading, following losses in Asia.
Wall Street’s main indexes opened flat as investors digested US President Donald Trump’s move to oust Federal Reserve governor Lisa Cook, citing allegations of false statements on her mortgage agreement.
The unusual step, which is likely to face a legal challenge, adds to fears about the independence of the central bank, fuelled by Trump’s repeated public demands to Fed chairman Jerome Powell to lower interest rates.
Powell suggested on Friday more cuts to US interest rates were on the horizon.
“Investors are becoming increasingly concerned by the president’s persistent interference in the business of the central bank,” said David Morrison, senior market analyst at Trade Nation.
Yet early trades on Wall Street suggested markets were not so preoccupied with the move.
Stock markets were flat and US Treasury bond yields, closely watched as a proxy for interest rates, were little changed.
“One explanation could be that there’s a strong belief that this will fail in the courts because (Cook) has not been proven guilty of anything at the moment,” Steve Sosnick of Interactive Brokers said.
The dollar fell while gold rose as investors sought a safe place to store their gains.
Trump also said on Monday he would impose “substantial additional tariffs” on shipments from countries that do not cancel digital taxes and regulations, which he said were “designed to harm” US technology.
He threatened to introduce export restrictions on “highly protected (US) technology and chips”, without offering further details.
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