The European stock market ends August with a slight increase (+0.9%). Meanwhile, U.S. indices denominated in euros have slightly declined, with the S&P 500 down by -0.5% and the Nasdaq down by -0.8%.
The month had started off quite well with, finally, the end of the suspense regarding U.S. tariffs and an important trade agreement with Europe, although the latter was too imbalanced in favor of the United States. Investors dislike uncertainty more than anything else, so we could finally start thinking about other things.
But that was without counting on the French Prime Minister François Bayrou, who, unable to secure the necessary political support for his 2026 budget, chose the last week of the month to attempt a political gamble that seems, in reality, more like a disguised resignation, thus plunging France back into the turmoil we experienced in mid-2024 with the dissolution. The market, in its great wisdom, did not miss this. French rates have slightly diverged again from those of neighboring Eurozone countries, and France is now the worst student in the class in terms of credit risk.
And yet, not all economic indicators are that negative. For instance, there is a slightly positive current account balance, low inflation at 1%, which enhances the cost competitiveness of local businesses, and while growth is weak, it is not catastrophic. The main issue for the country is actually its public deficit, which is expected to reach 5.4% of GDP in 2025. It is essential to reduce this to around 3% or even 2% as quickly as possible, without hindering economic growth.
It was in pursuing this objective that François Bayrou stumbled, proposing a plan that ultimately amounts to a freeze on discretionary spending on one side and an increase in mandatory levies of nearly 20 billion on the other, which is about 0.7% of GDP. With a National Assembly fractured into three major opposing political poles, the spending aspect wasn’t particularly problematic since “changing nothing” is ultimately what is referred to in game theory as the “Nash equilibrium,” meaning the least politically costly position for each of the actors. On the other hand, he couldn’t find support for the tax increases, with the left believing that the wealthy were not being taxed enough and the right arguing that they are completely counterproductive due to the so-called “Laffer effect,” which suggests that beyond a certain rate, trying to raise taxes actually leads to a decrease in revenue.
The ailing country of Europe now faces two options: either accept a “special law” type budget with a freeze on all lines implemented by a technical government, or return to the polls with the risk that the new Assembly could be just as blocked as the previous one, or even take the leap into the unknown with a Rassemblement National in power for the first time in its history. It is this second hypothesis that the markets fear the most because it brings the greatest uncertainty. However, if we want to look at things positively, we can observe that the public’s awareness of the unsustainability of its economic model and debt trajectory is rapidly increasing, which will inevitably lead to corrective measures sooner or later, similar to those implemented in recent years in Italy, Spain, Portugal, Ireland, and Greece.
The Clartan funds also remained stagnant in August. Valeurs showed +0.1%, Europe -0.5%, and Ethos decreased by -1.6%. Patrimoine showed +0%, Flexible -0.6%, and Multimanagers +0.4%.
