LONDON: Stocks in Europe steadied on Monday, after the French government said it would scrap a proposed budget reform as a concession to its far-right coalition partner, lifting overall investor sentiment and putting US equities on track for a modest rise. The French administration said on Monday there will be no change to medication reimbursements in 2025, ditching earlier plans to tighten the system as part of a wider savings push.
European shares, helped by a bounce-back in France, forged higher, while US stock index futures, turned modestly positive, suggesting benchmark indices could rise beyond Friday’s record-high close. "Clearly, the financial issues aren’t going to go away, but nor are they going to bring the house down in short order,” IG Markets chief market analyst Chris Beauchamp said.
"It’s understandable - the risk-on move from key assets, hoping that this might lead to some kind of agreement.” The euro itself EUR=EBS gained little respite, down 0.6 percent to $1.05095, as the dollar got a boost from US President-elect Donald Trump at the weekend, who warned BRICS emerging nations against trying to replace the greenback with any other currency. France’s National Rally (RN) had given Prime Minister Michel Barnier until Monday to yield to the far-right party’s demands for concessions in his proposed budget or face the possibility of it backing a no-confidence motion.
In June, the premium, or spread that investors demand to hold French rather than German sovereign bonds - widely considered the benchmark for Europe - burst above 80 basis points for the first time since the 2012 euro zone debt crisis. That spike resulted from a dismal result in European parliamentary elections which prompted President Emmanuel Macron to call a snap vote, resulting in Barnier’s fragile coalition. On Monday, that spread was around 81 bps, some 1 bp wider on the day and below the session high of 86 bps and below last week’s 12-year high of 90 bps.
The euro was down 0.6 percent at $1.0513 against the dollar. It has lost some 6 percent in value since late September, when it hit 14-month highs, in part because of concern that the health of the euro zone economy might require the European Central Bank to deliver deeper interest-rate cuts than previously expected. "Heightened political uncertainty could also play a role at the margin in keeping alive market expectations for larger 50 bps ECB rate cut this month although the hard economic data is not fully supportive,” MUFG currency strategist Lee Hardman said. — Reuters