France’s CAC 40 drops 1% on budget angst, European auto stocks struggle

By Joao Manuel Vicente Mauricio and Ankika Biswas

(Reuters) -French stocks dropped to an over three-month low on Wednesday, knocked down by investor dread over the new government and its budget, while continued worries over the impact of Trump’s proposed tariffs kept European automobile stocks under pressure.

The pan-European STOXX 600 was down 0.3% as of 0930 GMT, after snapping a three-day winning streak on Tuesday.

France’s main stock index dropped more than 1%, sharply lagging its regional peers, with lenders BNP Paribas, Societe Generale and Credit Agricole falling between 2% to 3.4%.

French bonds also took a hit, driving the premium the government must pay for long-term borrowing to its highest since 2012.

“Over the next couple of weeks, we will continue to see elevated headline risks surrounding the French budget for 2025,” asset manager DWS wrote.

Far-right leader Marine Le Pen has been threatening to topple the government in disagreement with measures to cut spending and raise taxes in the budget.

“Both parties together have a majority in the parliament. Following last summer’s snap elections, President Macron cannot dissolve parliament again until June 2025. The base scenario, at least until then, remains a lot of political noise and little progress.”

Investors also continued to worry about the next potential target of tariffs, after U.S. President-elect Donald Trump announced big tariff pledges on the United States’ largest trading partners, including Mexico and China.

This concern, prominent since Trump’s election victory, has kept European stocks on the back foot, among other factors.

European auto stocks fell for the second straight day, and were among the worst-hit sectors, as Trump’s tariffs on Mexican imports to the U.S. are seen bruising the bloc’s car makers.

Among individual stocks, Grifols slumped 11% after a report said Canadian investment fund Brookfield is considering dropping its plan to take over the Spanish pharmaceutical firm.

Elekta fell 5% after the Swedish radiation therapy equipment maker posted second-quarter profit and orders below expectations.

Budget airline EasyJet rose 3.4% after it forecast upbeat 2025 capacity, while German consumer goods maker Henkel rose 3% following JP Morgan’s rating hike to “overweight” from “neutral”.

Also in focus is U.S. inflation data, due on Wednesday, a day after the Federal Reserve’s November meeting minutes showed officials agreed to avoid giving much guidance on how monetary policy is likely to evolve.

(Reporting by Joao Manuel Mauricio in Gdansk and Ankika Biswas in Bengaluru; Editing by Sonia Cheema and Janane Venkatraman)