French stocks collapsed 2% on threat of government resignation

French stocks fell 2% in early trading on August 26, contributing to the decline of the composite European market. Investors are selling off French assets for the second day due to increased political uncertainty - the Parliament in September will consider a vote of confidence in the government, which is in favor of reducing the budget deficit. Additional pressure on global equities is exerted by Donald Trump's increased pressure on the Fed.

France's main stock market index CAC 40 collapsed 2% in early trading, with shares of French banks BNP Paribas and Societe Generale falling 7.3% and 7.9% respectively.

The yield differential between French and German 10-year bonds, a key risk indicator, widened by three basis points to 78 basis points. At the end of last week it was 70 b. p. The yield on 10-year bonds in France is now one of the highest in the eurozone: it exceeds the bond yields of Greece and Portugal, which in the past were at the epicenter of the European debt crisis, and only seven basis points below the yields of Italian counterparts, notes Bloomberg.

The STOXX 600 composite index of the European stock market fell by almost 1%. All other major stock exchanges in the region were also trading in the red zone.

Global stocks are under pressure from growing concerns about the independence of the US Federal Reserve. US President Donald Trump increased pressure on the central bank on August 25, saying he was firing Fed Governor Lisa Cook, who has been accused by his supporters of alleged mortgage fraud. Cook herself responded that Trump had no grounds or authority to fire her and that she intended to fulfill her duties. Increased uncertainty has limited investor interest in risky assets, explains Reuters

French assets sold off for the second day in a row amid heightened political uncertainty in the country, Bloomberg writes.

On the eve of the French Prime Minister François Bayrou announced that in September a vote of confidence in the government will be put to the parliament. The political crisis was caused by Bayrou's budget plan for 2026, which provides for a deficit reduction of 43.8 billion euros. To achieve this, the prime minister proposes unpopular measures, including freezing the indexation of social benefits and pensions and canceling two non-working holidays.

Three key opposition parties have already said they will not support a vote of confidence. If a majority of MPs vote against Bayrou's government, he will have to resign early, repeating the fate of Michel Barnier's previous cabinet, which lasted only 90 days. The failure of another French government would underscore the precarious position of President Emmanuel Macron, whose party and its allies have lost their parliamentary majority in 2024, Bloomberg notes.

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