CAC 40 down 1.7% after Macron calls snap election

LONDON — European stocks fell on Monday morning as traders reacted to initial results from the EU Parliament elections and the surprise call for parliamentary elections by French President Emmanuel Macron.

Early EU election results indicate that populist, far-right parties could have a bigger hand in European policymaking over the next five years.

The pan-European Stoxx 600 index was down 0.6% at 9:50 a.m. London time, with construction stocks leading the losses, down 1.4%.

The euro slipped 0.4% against the U.S. dollar and 0.3% against the British pound.

The election drama was rounded off Sunday evening when French President Emmanuel Macron called snap parliamentary elections later this month after suffering a heavy defeat in the EU vote.

The French CAC 40 was down 1.9%, with French banks sharply lower following the shock news. Societe Generale and BNP Paribas shares fell 7% and 4%, respectively.

Given that the center-right held onto a majority and far-right gains had been widely forecast, it was the snap French election that “spooked the market” on Monday, strategists at Barclays said in a note.

The EU election results “are a blow to Macron’s credibility and pro-EU stance,” they said.

Gains for Marine Le Pen’s far-right party suggest it could now win more seats in the French parliament, however, “there is still a long way to go before they get an outright majority (289 seats), and as it stands, the most likely outcome appears to be another hung parliament/coalition for Macron,” according to Barclays.

Elsewhere, investors will be looking ahead to more U.S. inflation data on Wednesday, as well as the next meeting of the U.S. Federal Reserve. Both come after a stronger-than-expected U.S. jobs report last Friday revealed hiring and wage growth picked up in May.

It adds to the narrative that the Fed is in no rush to lower interest rates. Traders don’t expect the Federal Open Market Committee to cut rates at its meeting this week or the next meeting in July.

Overnight, Asia-Pacific markets were mixed, with a few markets closed for a holiday Monday, including Australia, mainland China, Hong Kong and Taiwan. Meanwhile, U.S. stock futures were little changed after a winning week.