French Stocks Lead European Market Losses

By Sruthi Shankar

(Reuters) – French stocks led losses across European markets on Monday following a surprise ratings downgrade by Moody's, while easing pressures on euro zone business activity failed to uplift investor sentiment.

France's blue-chip CAC 40 dropped 0.7%, after credit ratings agency Moody's downgraded the country's rating unexpectedly on Friday from "Aa2" to "Aa3" with a stable outlook.

This news coincided with President Emmanuel Macron appointing veteran centrist Francois Bayrou as his fourth prime minister this year.

French banks such as Societe Generale, BNP Paribas, and Credit Agricole took a hit amid the downgrade.

Despite surveys indicating a slight easing in Germany's economic downturn in December, business activity has contracted for the sixth month running, while France's services sector continued to shrink.

The decline in euro zone business activity has calmed somewhat, with the leading services sector showing signs of growth, according to HCOB's preliminary composite euro zone Purchasing Managers' Index (PMI).

However, Jack Allen-Reynolds, deputy chief euro-zone economist at Capital Economics, pointed out that this recovery might not significantly impact future forecasts as the PMI remains below past numbers and is indicative of potential economic contraction.

The pan-European STOXX 600 index fell 0.2%, nearing a two-week low. The German DAX and Britain's FTSE 100 also declined by about 0.3% each.

The European Central Bank (ECB) has already cut interest rates four times this year. Investors anticipate further policy easing in 2025 as inflation concerns subside, making sluggish economic growth more pressing.

ECB President Christine Lagarde mentioned that further rate cuts will follow if inflation trends toward the 2% target, indicating that restricting economic growth is no longer necessary.

Attention will also be on monetary policy decisions from the U.S. Federal Reserve, the Bank of England, and the Bank of Japan later this week.

Porsche shares dipped 2.4% after it warned of a potential write-down of its Volkswagen stake by up to 20 billion euros ($21 billion), predicting a significantly negative group result after tax for 2024.

Volkswagen itself dropped about 2%.

Meanwhile, Entain saw a 6.7% decline following legal action launched by Australia’s financial crime watchdog against its local unit, Ladbrokes.