Spain PM Calls Early Election After Housing Crisis Defeat
Spain has been operating under its 2023 budget, the last national spending plan passed by Sanchez's government, for several years.
The euro experienced a 17-month low against the US dollar at the beginning of the week, driven by fiscal and political risks in France and Spain. The currency touched $1.1161 during Asian trading hours after four consecutive weekly declines, and stood around $1.12 at the opening bell in Europe, showing a slight recovery. Dutch bank ING analysts cautioned that the market could see an additional 2% risk premium added to the euro if the bond sell-off continued.
The gap between French and German 10-year bond yields rose to 146 basis points, the highest in 17 years, after a sharp weekly increase last week. France's 10-year yield climbed to 4.917% at the start of the week, nearing its 24-year high, while Spain's yield remained stable around 4.07% to 4.09%. French Finance Minister Roland Lescure defended France's solid borrowing status, presenting a 2027 budget aimed at reducing the deficit from 5.4% of GDP to 5% before the upcoming presidential election.
Spanish Prime Minister Pedro Sánchez announced a snap general election on November 29 after the parliament rejected two housing decrees proposed by his minority government. European stocks were mixed, with the Euro Stoxx 50 down 0.4% and the broader Stoxx 600 up 0.6%. France's CAC 40 fell more than 1%, while Spain's IBEX 35, which dipped after Sánchez's announcement, rose 0.4%.
Germany's DAX, Italy's FTSE MIB, the UK's FTSE 100, and the Netherlands AEX traded between 0.1% and 0.3% higher. The sell-off also affected Italian, Belgian, and Greek bonds, with Italy's premium over German bonds nearing 110 basis points. ECB officials, including Germany's Bundesbank head Joachim Nagel and ECB President Christine Lagarde, emphasized price stability over specific spread levels.
Lagarde noted that France's debt level, close to 120% of GDP and not on a controlled path, posed a serious matter, but insisted it was not reminiscent of the 2008 or 2011 crises. US stocks rose on Friday due to a lower-than-expected job growth report, prompting traders to reduce expectations of a Federal Reserve rate hike in October.
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