The resignation of Sebastien Lecornu as prime minister has sent French borrowing costs higher
Stock markets diverged Monday, with Paris dropping as France plunged further into political crisis after the prime minister’s resignation, while Tokyo surged on new leadership of its ruling party.
Gold pushed on with its rise close to $4,000 an ounce as the US government shutdown and expected interest cuts from the Federal Reserve boosted the precious metal’s attractiveness.
The euro fell against main rivals and French borrowing costs spiked as Sebastien Lecornu resigned after less than a month in office and shortly after unveiling a largely unchanged cabinet.
France’s “fractured parliament is making it nearly impossible to pass a budget that reduces the fiscal deficit”, said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.
“With government borrowing running at more than five percent of GDP and the debt ratio rising, the risk premium on French government bonds will continue to widen,” he added.
Shares in French banks BNP Paribas, Societe Generale and Credit Agricole all shed more than four percent in midday trading.
Elsewhere, London and Frankfurt stock markets edged higher nearing the half-way mark, after Hong Kong closed lower.
Tokyo surged almost five percent to a record high and the yen sank on bets the new leader of Japan’s ruling party will loosen monetary policy to kickstart the economy.
Sanae Takaichi, likely to become Japan’s prime minister this month, has previously backed aggressive monetary easing and expanded government spending.
The yen weakened more than one percent against the dollar and hit a record low against the euro.
Yields on 30-year Japanese bonds rose sharply reflecting fears the country’s already colossal debt will balloon further.
After her victory Saturday, Takaichi pledged first to implement measures to address inflation and boost Japan’s economy, rural areas and primary industries.
“She has said that the Bank of Japan should not raise interest rates, which is feeding demand for stocks and weighing on long term bond yield,” said Kathleen Brooks, research director at trading group XTB.
“The decline in the yen is also a sign that the market is pricing out the prospect of BoJ rate hikes this year,” she added.
US futures were all up on Monday, even as the closure of parts of the US government dragged into a second week.
Federal agencies have been out of money since Wednesday — with several public services crippled — as a result of deadlocked talks over funding.
The row meant key jobs data used by the Federal Reserve to guide it on monetary policy was not released as normal on Friday.
Still, observers said recent reports indicating the labour market is slowing would likely be enough to cut rates at the next meeting at the end of the month, with other readings on inflation due beforehand.
Bitcoin hit a new peak of $125,689 on Sunday.
Oil jumped more than one percent after OPEC+ agreed at the weekend to boost supplies by 137,000 barrels a day — less than initially expected.
– Key figures at around 1100 GMT –
London – FTSE 100: UP 0.1 percent at 9,502.54 points
Paris – CAC 40: DOWN 1.3 percent at 7,975.29
Frankfurt – DAX: UP 0.2 percent at 24,423.01
Tokyo – Nikkei 225: UP 4.8 percent at 47,944.76 (close)
Hong Kong – Hang Seng Index: DOWN 0.7 percent at 26,957.77 (close)
Shanghai – Composite: Closed for a holiday
New York – Dow: UP 0.5 percent at 46,758.28 points (close)
Euro/dollar: DOWN at $1.1662 from $1.1742 on Friday
Pound/dollar: DOWN at $1.3423 from $1.3482
Dollar/yen: UP at 150.29 yen from 147.45 yen
Euro/pound: DOWN at 86.88 pence from 87.09 pence
West Texas Intermediate: UP 1.4 percent at $61.70 per barrel
Brent North Sea Crude: UP 1.4 percent at $65.40 per barrel
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