On December 16, 2024, Moody's downgraded France's credit rating from 'Aa2' to 'Aa3', a decision that has significantly impacted market sentiment, particularly reflected in the performance of the CAC40 index, which fell by 0.68% to 7,359.27 points [9f24539f]. The downgrade, attributed to political fragmentation and concerns over fiscal stability, places France three levels below the top rating and raises alarms about the country's economic trajectory [54a330ee].
The recent appointment of Francois Bayrou as Prime Minister, succeeding Michel Barnier, has not mitigated these concerns. Bayrou is now tasked with navigating a politically divided government to pass necessary budget measures, following Barnier's dismissal after failing to secure approval for a €60 billion austerity plan aimed at reducing the budget deficit from 6.1% of GDP to 5% [54a330ee].
In the broader economic landscape, analysts are closely watching the upcoming Federal Reserve monetary policy meeting scheduled for December 18, 2024, where a quarter-point easing is expected [9f24539f]. This comes amid a backdrop of mixed economic signals globally, including a slowdown in China's retail sales growth to 3% in November and a PMI index for France indicating economic decline at 46.7 [9f24539f].
Despite these challenges, U.S. markets have shown resilience, with the S&P 500 index up 29% year-to-date, driven by strong earnings from major companies like Broadcom and a growing demand for AI chips [54a330ee]. This contrast highlights the differing economic trajectories, with France's political instability and economic challenges standing in stark contrast to the performance of other global markets [3534ff38].