French stocks and bonds fall after weekend riots, with retailers and hotels hit hardest

French stocks led Europe lower on Monday, Oct. 19, and the country's borrowing costs rose, as markets got their first chance to react to a weekend of riots and looting across France. Retailers and hotel owners took the biggest hits, and the yield on France's 10-year bond climbed while Germany's barely moved.

Paris lags the rest of Europe

The selling was concentrated in France. By 9:20 a.m. in Paris (3:20 a.m. ET), the CAC 40 stood at 7,861.95, down 1.19% on the day, according to Euronext real-time data published by Boursorama, while Germany's DAX was down 0.41%. AFP's count of the first trades had Paris down 1.08%, Frankfurt 0.5% and London 0.29%. The pan-European STOXX 600 was off 0.39% at 642.24 shortly after 9 a.m. Paris time, with banks the weakest sector at minus 1.4%.

The three biggest decliners in the CAC 40 were businesses that rely on shoppers and travelers. Carrefour fell 3.07%, shopping-center owner Unibail-Rodamco-Westfield 2.98% and hotel group Accor 2.92%. Stellantis and builder Eiffage were also down more than 2.5%. A few index heavyweights went the other way: TotalEnergies rose 0.57% and Dassault Systèmes 0.61%.

Carrefour has a direct bill to count. Chief executive Alexandre Bompard told broadcaster BFMTV that 50 of the group's stores were damaged, 20 of them looted, with losses running into the tens of millions of euros.

Bonds and the euro

In the bond market, the yield on France's 10-year government bond, or OAT, rose 6.3 basis points to 4.84% in early trading, while the equivalent German Bund yield rose by less than 1 basis point to 3.42%. That puts the extra yield investors demand to hold French debt instead of German debt at a little over 142 basis points. On Friday the French 10-year had closed at around 4.78%, with the gap at roughly 137 basis points, so the weekend added about 5 basis points to France's risk premium in early trading.

French borrowing costs reached their highest levels since 2002 earlier this month amid a difficult budget debate. Yields then fell notably last week, as government debt partly regained its role as a haven while investors fretted about artificial-intelligence companies.

The euro was down 0.17% at $1.1220. Kieran Williams, head of Asia FX at InTouch Capital Markets, said the weekend's unrest was weighing on the currency mainly through French bonds rather than directly.

What happened over the weekend

More than half a million people marched in cities across France on Saturday against rising living costs and declining public services, as a month-long student movement merged with broader discontent. Most marched peacefully, but violent groups looted luxury boutiques and supermarkets, attacked police and targeted public buildings; the town hall in Limoges was set ablaze. Interior Minister Laurent Nuñez said police made 2,400 arrests and nearly 1,000 officers were injured. One protester died after a cardiac arrest in Paris. An estimated 1,500 shops and businesses were looted and destroyed, the BBC reported, describing the scenes as some of the worst public disorder in modern French history. Fresh clashes broke out in Paris and Marseille on Sunday.

President Emmanuel Macron appealed for calm in a televised address on Sunday. He stopped short of declaring a state of emergency but said prefects would be able to ban protests where needed to protect public buildings and local businesses. On Monday his office said he had refused Nuñez's resignation, and Prime Minister Sébastien Lecornu is chairing a crisis meeting. Economy Minister Roland Lescure has promised support for business owners who suffered losses.

Why the bond market is the pressure point

The unrest makes an already hard budget harder. Investors want France to get its debt under control, but the government worries that cutting public services or welfare would bring more people onto the streets, and a presidential election is due next year. Parliament is split among three rival blocs. Investment manager Ninety One warned on Monday that if France fails to pass its 2027 budget, the deficit could exceed 6% of GDP next year, more than double the European Union's 3% limit.

"French OATs continue to be the punching bag in the ongoing selloff in sovereign bond markets," Elias Hilmer, a markets economist at Capital Economics, wrote on Friday, before the riots. He forecast that the gap over German yields could widen to 200 basis points by the end of 2027 and warned that the European Central Bank could be reluctant to step in if French yields rise because of genuine concerns about the country's finances.

The next tests

So far the repricing is measurable but limited: the CAC 40 is down about 1% and the premium on French debt has widened by about 5 basis points. The next tests are what Lecornu's crisis meeting offers businesses, how fast the damage bill grows and whether the calm holds. Students begin a two-week school break on Monday, but trade unions and the "yellow vest" movement have called large protests for Nov. 5.