Euro slides as concerns about French debt mount
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NEW YORK: The euro slid Monday (Oct 5) to its lowest level against the dollar in 17 months on worries about France's high debt and deficits, which have sent its government bond yields soaring.
But equities traded broadly higher despite the pressure of elevated bond yields, with the Nasdaq hitting a fresh record in New York.
The euro's slide follows an underwhelming 2027 budget plan unveiled last week. This fanned concerns that French government spending will remain high ahead of next year's presidential elections in which the far-right Marine Le Pen, seen as a fiscal populist, stands a chance of winning.
That has rattled bond investors at a time when interest rates - and hence borrowing costs - are rising in developed economies worldwide to combat inflation.
French debt is projected to rise to nearly 122 per cent of the country's GDP next year, despite billions of euros in planned spending cuts.
That has sent its 10-year government bond yield to 4.8 per cent, the highest since the 2011 eurozone bond crisis.
A call for snap elections in Spain by Prime Minister Pedro Sanchez also surprised investors, after lawmakers rejected a hotly debated housing relief bill from his Socialist-led minority government.
"France had already been under pressure due to questions over fiscal credibility and political stability," said Patrick Munnelly, market strategist at Tickmill Group.
"Spain now adds another layer of uncertainty," he added. "Europe's political risk is weighing on the euro."
STOCKS ADVANCE
Stocks meanwhile were broadly higher, with the tech-focused Nasdaq closing at a new record, driven by advances in stocks linked to artificial intelligence.
Shares in SpaceX jumped by 7.6 per cent while those in Meta rose by 1.9 per cent.
However, analysts worry the market's gains are being driven by an increasingly narrow slice of stocks.
"The market appears increasingly fragile, but we are only eight days away from what many view as the official start of earnings season when many of the big banks report," said Justin Bergner of Gabelli Funds.
Paris was dragged lower on worries about bond yields as well as a nearly 10 per cent drop in Schneider Electric shares after the company unveiled a US$22.6 billion all-cash deal to buy the US engineering software specialist PTC.
Oil prices ended lower Monday after an earlier agreement among G7 countries, in coordination with the International Energy Agency, to immediately release 100 million barrels of diesel and crude oil to ease supply concerns caused by the US-Iran war.
But Saudi Aramco chief executive Amin Nasser on Monday described oil stockpiles as "scarily thin" as the European winter looms.
Exports of Middle East oil, excluding Iran, surpassed their pre-war levels last week despite attacks on ships in the Strait of Hormuz, according to data from the maritime tracking firm Kpler.
However supplies of some products like diesel remain tight due to refineries damaged during the conflict in the Middle East as well as Ukrainian strikes on Russian energy facilities.
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