Political Crisis Clouds Market Outlook: Morning Bid

Images Credit: Reuters

Political unrest is spreading across Europe as French lawmakers prepare to vote on no-confidence motions on Wednesday, which could bring down the fragile coalition government. Earlier in Asia, South Korean politicians called for the impeachment of President Yoon Suk Yeol after a failed martial law attempt shocked markets.

French bond futures are weak, as are European futures, while the euro remains close to a two-year low reached in November, with the vote in France looming for the eurozone's second-largest economy.

PMI data from the region will offer more insights into the state of the economies.

Investors have reacted negatively to the political crisis in France, widening the spread between French bonds and the German benchmark, and leading to a sell-off in the euro. Since President Macron called snap elections in June, France’s CAC 40 has fallen nearly 10%, making it the worst-performing among major EU economies. The euro has dropped almost 4% in the same period.

In Asia, all attention was on South Korea after President Yoon declared martial law, only to reverse it hours later, sparking the country’s most significant political crisis in decades. A coalition of opposition lawmakers is set to propose an impeachment bill against Yoon on Wednesday, with a vote expected within 72 hours. The political turmoil is ill-timed for Korean assets, which have already been underperforming in the region. The Kospi Index is down nearly 2%, bringing its 2024 losses to 7.5%, making it the worst-performing major Asian stock market.

The South Korean won remained stable in Asian trading after a sharp drop overnight when the martial law announcement was made, though this stability was likely controlled by authorities. The won has depreciated 9% against the dollar this year, the worst performer in the region. The finance ministry stated it was ready to inject “unlimited” liquidity into financial markets.

Meanwhile, the Australian dollar dropped more than 1% to a four-month low following weaker-than-expected economic growth, strengthening the case for earlier rate cuts by the central bank.

Paraphrasing text from "Reuters" all rights reserved by the original author.