Moody’s sees impacts on ratings and banks

Not even a month has passed since the European elections when the markets of the Old Continent find themselves facing a new test for financial stability: the early elections in France. President Emmanuel Macron, precisely in consideration of the negative outcome of the vote in Europe, has in fact dissolved the Parliament and called early elections which will be held on Sunday June 30 (first round) is Sunday July 7 (second round).
Around 50 million French people are called to vote to renew the National Assembly (parliament). But what impact are the elections having on the markets? And how will they act based on the outcome of the elections?

The vote on Sunday 30 June

Two days before the vote, the surveys they seem to still give Marine Le Pen’s National Rally party is on the movewith 36% of the preferences, confirming the rise of the far right in France and a protest vote against President Macron.

The far-right front would largely surpass both the left-wing New Popular Front at 29% and the front supporting Macron indicated at 19.5% of the vote.

Nervous markets

Precisely in consideration ofThe outcome of the elections was against the current President Macron is causing a feeling of uncertainty on the financial markets, who react with a certain nervousness in view of the elections, especially the Paris Stock Exchange.

The Cac-40 Index this morning it started slightly lower, recording a drop of 0.25%, despite the better performance of the rest of Europe. Also to week closes with a minus sign (-2.1%), while the performance of the last month marks a significant –7.6%

At the same time, the bond yield French Decennial (OAT) continues to rise, carrying itself at 3.284% (+1.1 basis points), to incorporate a greater risk premium, while the French spread rose to 82 points compared to the German Bund.

Moody’s sees rating downgrade risks

And, in the meantime, the rating agency Moody’s has issued a warning: a prolonged period of post-election political instability could have “a negative impact” on the operating environment of French banks. In particular, the agency fears “a substantial decline and prolonged” of the value of French government bonds, the OATwhich would produce a surge in returns and spread. The other side of the coin of political instability.

But the agency anticipates that the elections could also worsen the French ratingjeopardizing fiscal consolidation. Moody’s currently maintains an Aa2 rating on France, one step above those of S&P and Fitch, but the election outcome is “credit negative” and could lead to a cut in the outlook from stable to negative and in the long run to a lowering of France’s creditworthiness.

“The potential political instability represents a credit risk – the agency underlined – given the difficult fiscal framework that the next government will inherit”.