European Markets Set to Open Lower as France’s Political Uncertainty Weighs on Sentiment

LONDON — European stocks were poised to open in negative territory on Thursday, with investors closely watching political developments in France after President Emmanuel Macron’s office confirmed he will appoint a new prime minister within 48 hours. The uncertainty in Paris comes as traders weigh broader global market dynamics, from U.S. equity highs to fresh trade measures in Europe, leaving sentiment fragile at the start of the session.

According to data from IG, futures pointed to a softer open across the region. London’s FTSE 100 was seen down half a percent, Germany’s DAX fractionally lower, France’s CAC 40 off by 0.17 percent, and Italy’s FTSE MIB down 0.2 percent. The pan‑European Stoxx 600, which closed higher on Wednesday, was expected to retreat as investors digested both domestic political risks and international economic signals.

France in Focus

The spotlight remained firmly on France after Prime Minister Sébastien Lecornu resigned earlier this week, triggering a scramble in Paris to restore political stability. Macron, under pressure from rival parties and his own centrist allies, pledged to name a successor within two days. The president’s challenge is formidable: to appoint a leader capable of navigating a fragmented parliament without resorting to snap elections. Lecornu, in his parting remarks, insisted that “a platform for stability exists” and expressed confidence that a budget could still be passed before year‑end. Markets, however, remain wary.

“France is the eurozone’s second‑largest economy, and prolonged political paralysis there has ripple effects across the bloc,” said Clara Jensen, senior European strategist at Saxo Markets. “Investors are not just worried about who the next prime minister will be, but whether the government can deliver fiscal clarity at a time when growth is already slowing.”

The resignation has reignited debate about Macron’s political strategy. His centrist coalition has struggled to pass legislation since losing its absolute majority in 2022, and repeated clashes with opposition parties have left the government vulnerable. Analysts say the choice of prime minister will be a litmus test for Macron’s ability to maintain authority in the final years of his presidency.

Market Reaction

The muted futures suggested traders were bracing for volatility. On Wednesday, European equities had closed higher, buoyed by news that the European Union would tighten tariffs on imported steel — a move seen as protective for domestic producers. But those gains were set to be unwound as attention shifted back to France. The euro held steady against the dollar in early trade, but analysts warned that prolonged uncertainty in Paris could weigh on the currency. French government bond yields ticked higher in overnight trading, a sign of investor caution.

London’s FTSE 100 was expected to open lower, pressured by energy and financial stocks. Germany’s DAX was seen just below the flatline, with industrial exporters sensitive to euro fluctuations. France’s CAC 40 reflected direct political risk, while Italy’s FTSE MIB was forecast to slip, with banks underperforming. Traders said the cautious tone was likely to persist until Macron’s decision became clear.

Global Backdrop

Overnight, Asia‑Pacific markets delivered mixed signals. Shares of Japan’s SoftBank surged as much as 13 percent after announcing a $5.4 billion deal to acquire the robotics division of Swiss engineering giant ABB, underscoring the region’s appetite for AI‑linked assets. In Hong Kong, the Hang Seng Index slipped as property developers came under renewed pressure, while in Shanghai, equities were broadly flat.

In the United States, Wall Street extended its rally. The S&P 500 closed at a record high, marking its eighth gain in nine sessions, while the Nasdaq Composite climbed more than 1 percent to finish above 23,000 for the first time. The Dow Jones Industrial Average lagged slightly, though chipmaker Nvidia rose more than 2 percent after CEO Jensen Huang told CNBC that computing demand had “gone up substantially” this year. The contrast between buoyant U.S. equities and cautious European sentiment highlights the divergence in investor focus: American markets are riding a wave of tech optimism, while Europe remains preoccupied with political and trade risks.

Political Stakes in Paris

Macron’s decision on a new prime minister is more than a personnel change; it is a test of his ability to maintain authority in a fractured political landscape. Analysts say the choice could determine whether France avoids early elections that might empower opposition parties. “Markets dislike uncertainty, and France is serving up plenty of it right now,” said Marc Dubois, chief economist at BNP Paribas. “If Macron opts for another centrist ally, he risks deepening the deadlock. If he reaches across the aisle, he may stabilize parliament but alienate his base. Either way, investors are bracing for turbulence.”

The timing is delicate. France faces budget negotiations, EU fiscal rules are tightening, and the European Central Bank is signaling caution on rate cuts. A misstep in Paris could complicate fiscal planning across the eurozone. Investors are also mindful of France’s credit rating, which could come under pressure if political instability undermines fiscal discipline.

Investor Sentiment

Despite the cautious open, some analysts argue that markets may be overreacting to French politics. “The fundamentals of European corporates remain solid, and earnings season could surprise to the upside,” said Elena Rossi, portfolio manager at Generali Investments. “But until there is clarity in Paris, investors will remain defensive.” Others caution that the risks are real. “This is not just noise,” said Jensen of Saxo Markets. “France’s ability to govern effectively is central to eurozone stability. If Macron fails to secure a workable coalition, the consequences could be felt far beyond Paris.”

Beyond France

While France dominates headlines, traders are also monitoring broader developments. The European Union’s decision to double tariffs on excess steel imports from 25 to 50 percent is seen as a protectionist shift that could invite retaliation from trading partners. The European Central Bank, meanwhile, faces a delicate balancing act as inflation moderates but growth slows. Any hint of dovishness could support equities, but hawkish signals would add pressure. Across the Atlantic, record highs on Wall Street may provide some cushion for European markets, though the divergence in sentiment could widen if political risks persist in Europe.

Outlook

As trading begins, the question is whether European markets can shrug off France’s political drama or whether uncertainty will deepen. Much will depend on Macron’s choice of prime minister and the reaction from rival parties. For now, the mood is cautious. Futures point lower, bond yields are edging up, and traders are bracing for a volatile session. The coming days will be critical in determining whether France can restore stability — and whether European markets can regain their footing.

Reporting by Nick Ravenshade.
Sources: CNBC, IG Markets, AFP, Bloomberg, Reuters.