France's Political Deadlock: Investors Brace for Financial Turbulence

France faces a hung parliament after the leftist New Popular Front's election victory, causing investor concerns over political deadlock and public finance stability. The focus is now on forming a government. Market reactions remain cautious, with fears of budget crises and escalating economic risks amidst ongoing negotiations.

A shock election win for France's leftist alliance has deepened investor concerns over potential political deadlock and the country's strained public finances. The New Popular Front (NFP) won the most seats but fell short of a majority, shifting the focus to government formation.

Investors have been wary, expecting policy paralysis which is unlikely to improve France's financial health. The risk premium for holding French debt over German debt slightly decreased to 65 basis points. However, concerns about France's public finances remain, with debt at 110.6% of output in 2023.

France's political landscape continues to be uncertain, with potential for lengthy negotiations to form a stable government. Market reactions have been tentative, reflecting fears of budget instability and increased economic risk. The possibility of another election in a year's time adds to the cautious outlook on French assets.

(With inputs from agencies.)