A Look at the Day Ahead in European and Global Markets

By Ankur Banerjee

Political turmoil is shifting to Europe as French lawmakers prepare for a vote on no-confidence motions on Wednesday, which could dismantle the fragile coalition government. Earlier in Asia, South Korean politicians demanded the impeachment of President Yoon Suk Yeol following a failed martial law attempt that unsettled markets.

French bond futures and European futures are performing poorly, while the euro hovers near a two-year low reached in November, just ahead of the critical vote for the eurozone's second-largest economy.

Additionally, PMI data from the region will shed light on the state of the economies.

French assets have faced significant punishment during this political crisis, evident in the widening spread between French bonds and the German benchmark, alongside a swift sell-off in the euro. Since President Emmanuel Macron initiated snap elections in early June, France's CAC 40 has declined by nearly 10%, making it the biggest loser among leading EU economies. The euro has also fallen nearly 4% during this period.

In Asia, the spotlight is on South Korea after President Yoon declared martial law but later rescinded the order within hours, causing the most severe political crisis in decades for Asia's fourth-largest economy.

A coalition of opposition lawmakers has announced plans to propose Yoon's impeachment on Wednesday, with a vote expected within 72 hours.

This political turmoil comes at an inopportune moment for Korean assets, which are already lagging behind in the region. The benchmark Kospi Index is down nearly 2% for the day, marking its 2024 losses at 7.5%, the worst performance among major Asian stock markets.

The South Korean won remained stable during Asian hours, having plummeted sharply overnight following the initial martial law announcement. However, this stability is believed to have been artificially supported by authorities. The won has depreciated 9% against the dollar this year, making it the weakest performer in the region. The finance ministry announced plans to inject "unlimited" liquidity into financial markets on Wednesday.

Further afield, the Australian dollar fell over 1% to a four-month low due to disappointing economic growth, which has strengthened the case for earlier interest rate cuts by the central bank.

Key Developments Influencing Markets on Wednesday:

• November PMI data for France, Germany, UK, and the eurozone

Editing by Muralikumar Anantharaman