A renewed wave of anxiety gripped global markets as concern over a political crisis in France deepened, driving stocks down while spurring a flight to haven assets — from bonds to gold and the U.S. dollar.

Traders took some risk off the table, with French shares this week losing roughly US$210 billion in value — about the size of Greece’s economy — after President Emmanuel Macron called a snap election. Since then, France’s bonds were at the heart of the rout, with the premium investors demand to own 10-year debt over safer German peers jumping by a record this week.

ECB Officials See No Cause for Alarm Over French Market Turmoil

 “The situation in Europe is starting to get a little dicey,” said Matt Maley at Miller Tabak + Co. “The move is still a long way from developing into another sovereign-debt crisis, but with concerns about sky-high sovereign debt levels and bloated budgets, the developments in Europe (and particularly France) are raising some concerns in the marketplace.”

In the U.S., stocks also struggled to gain traction as a gauge of consumer sentiment unexpectedly sank to a seven-month low as high prices continued to take a toll on views of personal finances. Federal Reserve Bank of Cleveland President Loretta Mester said she still sees inflation risks as tilted to the upside despite welcome news in the latest data.

The S&P 500 closed mildly lower, led by a drop in industrial shares. Tech outperformed, with Adobe Inc. up 15 per cent on a strong outlook. The Stoxx Europe 600 slid 1 per cent. France’s CAC 40 Index extended losses to over 6 per cent on the week, the most since March 2022. Societe Generale SA, BNP Paribas SA and Credit Agricole SA sank more than 10 per cent each this week.

Treasury 10-year yields declined four basis points to 4.21 per cent. The dollar hit its highest since November. The euro was among the worst-performing major currencies against the greenback this week.

What Macron’s Snap Vote Means for Debt Risk

European Central Bank officials see no cause for alarm in the market turbulence that has engulfed France in the past few days, according to people with knowledge of the matter. A spokesperson for the ECB declined to comment. 

Trader anxiety grew after a coalition of France’s left-wing parties presented a manifesto to pick apart most of Macron’s seven years of economic reforms and set the country on a collision course with the European Union over fiscal policy.

“While we’re typically of the mind that what happens in Paris stays in Paris (or at least Europe), the current episode has taken on a more troubling character for global financial markets than might otherwise have been the case,” said Ian Lyngen at BMO Capital Markets. “Chatter regarding the potential for the election outcome to ultimately lead France out of the European Union has been difficult to completely dismiss as ‘wild speculation’, especially in light of the experience with Brexit.”

To Thierry Wizman at Macquarie Group, France is moving toward one of two extreme political scenarios.

“Neither of assemblage is dedicated to pro-market principles, nor fiscal responsibility, nor, possibly the single currency.”

European stock funds suffered a fourth week of outflows at about $600 million, while cash funds had additions of $40.4 billion — the biggest among all the asset classes, according to a note from Bank of America Corp.

About $6.3 billion flowed into global stock funds in the week through June 12, with U.S. equities registering an eighth week of inflows, according to the note citing EPFR Global data. Europe is the only region seeing outflows this year.

European stock flows are at risk of further unwind without a positive catalyst to reassure foreign investors in the near term, Barclays Plc says. 

Strategists led by Emmanuel Cau closed their overweight stance earlier this week and advise caution on region for now — citing the political situation in France.

“We struggle to see a compelling reason to overweight continental Europe, even while it has become more consensus year-to-date,” they wrote.

Transactions of more than $1 million among the dollar-denominated bonds of major French banks have proliferated in recent days and are now much more frequent than large-ticket trades in their euro-area peers, based on Trace data compiled by Bloomberg. 

That’s hit the debt of lenders like BNP Paribas and Credit Agricole.

Elsewhere, the Bank of Japan is making investors wait until its July meeting for details on its paring of bond buying, leaving the yen vulnerable to further declines.

The central bank’s decision Friday to stand pat on interest rates was widely expected, but traders were surprised by it just flagging a cut in debt purchases without laying out any figures or a timeline. 

“The Bank of Japan sent the already anemic yen into a tailspin when it declined to provide a timeline for scaling back its bond purchasing, which many investors believe is essential for shoring up the country’s currency,” said Jose Torres at Interactive Brokers.

Corporate Highlights:

  • The European Commission plans to allege that Apple Inc. stifles competition on its mobile app store, Financial Times reported, citing three people with close knowledge of the investigation.
  • The Federal Aviation Administration is investigating how titanium with potentially falsified records made its way from an obscure Chinese producer onto commercial jets manufactured by Airbus SE and Boeing Co.
  • Home Depot Inc. is sounding out investors for a corporate bond sale that could total $10 billion to help fund its acquisition of SRS Distribution Inc., according to people with knowledge of the matter.
  • Red Lobster and Fortress Investment Group, a major lender that may end up owning the seafood chain out of Chapter 11, struck a deal with a key creditor group to avert potential hurdles to the sale of the restaurant operator and its continued use of $100 million in bankruptcy financing.

Some of the main moves in markets:

Stocks

  • The S&P 500 was little changed as of 4 p.m. New York time
  • The Nasdaq 100 rose 0.4 per cent
  • The Dow Jones Industrial Average fell 0.1 per cent
  • The MSCI World Index fell 0.3 per cent

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2 per cent
  • The euro fell 0.3 per cent to $1.0704
  • The British pound fell 0.6 per cent to $1.2688
  • The Japanese yen fell 0.2 per cent to 157.29 per dollar

Cryptocurrencies

  • Bitcoin fell 1.8 per cent to $65,497.72
  • Ether fell 2.1 per cent to $3,405.55

Bonds

  • The yield on 10-year Treasuries declined four basis points to 4.21 per cent
  • Germany’s 10-year yield declined 11 basis points to 2.36 per cent
  • Britain’s 10-year yield declined seven basis points to 4.06 per cent

Commodities

  • West Texas Intermediate crude fell 0.2 per cent to $78.46 a barrel
  • Spot gold rose 1.2 per cent to $2,332.88 an ounce

This story was produced with the assistance of Bloomberg Automation.