European stocks continued to decline on Friday, extending losses from the previous session amidst ongoing election campaigns in the U.K. and France.
The political uncertainty in France has had a notable impact, especially after the country's finance minister cautioned that a new left-wing coalition could lead France to exit the European Union. This warning added to market anxieties.
Meanwhile, in the U.K., Nigel Farage's Reform UK has overtaken Prime Minister Rishi Sunak's Conservative Party, according to a YouGov poll. The poll, published by the Times newspaper, indicates Reform UK at 19 percent, up from 17 percent, with the Conservative Party remaining steady at 18 percent in voter preference.
The pan-European STOXX 600 index dropped by 0.4 percent, settling at 514.25, following a 1.3 percent decline on Thursday. Major indexes also saw decreases; Germany's DAX fell by 0.6 percent, France's CAC 40 plummeted 1.7 percent, and the U.K.'s FTSE 100 was down by 0.2 percent.
Regional banks experienced significant losses. French banks such as BNP Paribas, Credit Agricole, and Societe Generale saw their shares drop by 3-5 percent, as the risk premium on French bonds reached a four-year high due to concerns over the country's political climate.
France’s finance minister also warned of a potential debt crisis comparable to the one the U.K. faced two years ago if Marine Le Pen’s far-right party wins the upcoming legislative elections. Ratings agency S&P Global, which recently downgraded France’s credit rating, noted that the party's policies could further impact the nation's creditworthiness.
French retail giant Casino Group saw an 8 percent drop in shares after announcing exclusive negotiations with Auchan Retail France and Rocca for the sale of its Corsican subsidiary, Codim 2.
Conversely, Crest Nicholson shares surged by 8.4 percent in London. The troubled housebuilder rejected a second all-share takeover bid from the larger rival Bellway. Tesco also saw a rise, gaining 2.3 percent, fueled by reporting a "robust" increase in grocery sales for the most recent quarter.
On the economic front, France's consumer price inflation accelerated in May due to rising energy and food prices, according to final data from the statistical office INSEE. The consumer price index rose by 2.3 percent year-on-year in May, slightly higher than the 2.2 percent increase in April, with energy prices surging by 5.7 percent due to base effects.
Meanwhile, the Bank of England's quarterly Inflation Attitudes Survey by Ipsos indicated that Britons' short-term inflation expectations eased in May. The one-year ahead inflation expectation fell to 2.6 percent from 2.8 percent in February, with respondents noting current inflation at 5.5 percent, down from 6.1 percent in the previous period.
