FRENCH UNREST DRIVES EUROPEAN STOCK AND BOND SELL-OFF

European shares and government bonds fell on Monday as rioting and looting in France unsettled financial markets. France’s CAC 40 fell 1.5 per cent, while Germany’s DAX also lost 1.5 per cent. Italy’s FTSE MIB dropped 1.9 per cent as unrest spread into Italy. In London, the FTSE 100 fell by between 1.2 and 1.3 per cent during trading. Bond prices also fell, pushing up government borrowing costs across France, Italy and Britain.

France’s ten-year bond yield rose from 4.78 per cent on Friday to around 4.9 per cent on Monday. The gap between French and German ten-year yields reached its widest closing level since early 2012. Italy’s ten-year yield rose from 4.48 to 4.58 per cent, while the equivalent UK gilt yield climbed from below 5.38 per cent to nearly 5.44 per cent. Amsterdam’s AEX fell 0.5 per cent. Demonstrations over fuel prices and the condition of schools had developed into rioting and looting in France.

French Prime Minister Sebastien Lecornu said on Monday that he had instructed prefectures to impose “partial curfews”. He blamed what he called the “ultra-left” for the unrest. Andrew Kenningham, chief European economist at Capital Economics, said: “France appears to be heading for a fiscal crisis which could lead to contagion and potentially a recession in the euro-zone.” He said a larger crisis in France would raise borrowing costs and reduce growth in other eurozone economies. Kenningham added that the risk of contagion was much lower than it had been in the 2010s.