Dollar Gains as French Budget Woes Blight Euro: Markets Wrap

(Bloomberg) — The dollar pushed higher on Monday as the budget crisis swirling around the French government deepened further, weighing on the euro. 

The Bloomberg dollar index climbed 0.5%, while the common currency fell after France’s far-right party threatened to topple the government amid a stand-off over the nation’s budget. French bonds declined, with the yield premium that investors demand to hold the debt over German bonds widening to 87 basis points from about 80 on Friday. The CAC 40 stock index dropped 1.2% in Paris.

“There’s certainly a political instability and the securities, the French government bonds, are pricing that instability,” Ecaterina Bigos of AXA Investment Management told Bloomberg TV. “Political instability creates uncertainty, but what is more important is what is France going to do to bring that deficit down?”  

Stellantis NV shares plunged more than 8% after Chief Executive Officer Carlos Tavares stepped down from the automaker following a dispute with the board over how to arrest weakening sales and a stock slump. Europe’s broader Stoxx 600 index was steady. S&P 500 futures signaled a slight pullback from Friday’s record close for US stocks.

The euro dropped 0.7%. The single currency may be in for additional weakness after Governing Council member Martins Kazaks told a broadcaster that the European Central Bank should continue to cut borrowing costs. 

France’s budget drama dragged down banking stocks, with Societe Generale SA, Credit Agricole SA and BNP Paribas SA all lower. Oddo BHF strategist Thomas Zlowodzki said the government’s potential collapse isn’t priced into French assets. He suggested the CAC 40 could fall 5% and that the spread between French and German bond yields may widen further.  

Meanwhile, Treasuries dipped as traders looked ahead to US data that may help shape Federal Reserve policy and assessed hawkish comments from the Bank of Japan. The dollar was further supported by Donald Trump’s comments that the BRICS nations shouldn’t create a currency to rival the greenback, another reminder of the US president-elect’s America-first agenda. 

“A Trump presidency is going to put upward pressure on the US dollar given some of the policy stance, the tariffs and others, that he’s been talking about,” said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners Pty Ltd.

“From an equity market perspective, we actually think the equity market fundamentals itself are still pretty strong,” she said, citing the US as an example. 

Among key global events this week, Fed Chair Jerome Powell participates in a moderated discussion on Wednesday. Data due Friday will offer an assessment of the US jobs market.  

In Asia, stocks rose on signs of economic stabilization in China. Manufacturing activity in the world’s second-largest economy expanded for a second straight month in November, according to a private survey on Monday.

The Chinese data also supported oil prices. The rallying greenback triggered a drop in the price of gold. 

Key events this week: 

• Eurozone Manufacturing PMI, unemployment, Monday
• UK S&P Global/CIPS UK Manufacturing PMI, Monday
• FT Global Banking Summit in London through Dec. 4, Tuesday;  BOE Governor Andrew Bailey will be a panelist
• China Caixin services PMI, Wednesday
• Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday
• ECB President Christine Lagarde appears before European Parliament committees, Wednesday
• Fed Chair Jerome Powell speaks, Wednesday
• OECD publishes economic outlook, Wednesday
• Eurozone retail sales, Thursday
• Germany factory orders, Thursday
• OPEC and non-OPEC ministerial meeting, Thursday
• India rate decision, Friday
• Eurozone GDP, Friday
• US unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 was little changed as of 9:01 a.m. London time
• S&P 500 futures fell 0.2%
• Nasdaq 100 futures fell 0.1%
• Futures on the Dow Jones Industrial Average fell 0.1%
• The MSCI Asia Pacific Index rose 0.9%
• The MSCI Emerging Markets Index rose 0.7%

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%
• The euro fell 0.7% to $1.0506
• The Japanese yen fell 0.3% to 150.20 per dollar
• The offshore yuan fell 0.5% to 7.2850 per dollar
• The British pound fell 0.3% to $1.2697

Cryptocurrencies

• Bitcoin fell 2.7% to $95,136.14
• Ether fell 2.8% to $3,606.15

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.20%
• Germany’s 10-year yield declined four basis points to 2.04%
• Britain’s 10-year yield declined two basis points to 4.22%

Commodities

• Brent crude rose 0.8% to $72.44 a barrel
• Spot gold fell 0.5% to $2,628.83 an ounce

This story was produced with the assistance of Bloomberg Automation.

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