French blues

Last week, French stocks dropped 6.2%, erasing all their gains for the year. Meanwhile, the US 'Magnificent 7' stocks surged 4.8%, achieving five consecutive all-time highs. President Emmanuel Macron's announcement to dissolve the National Assembly, following a significant defeat in the European elections, widened the OAT-Bund spread. This political turmoil stems from France's high twin deficits (public and trade), low public revenues against high spending, high national debt, and inability to reform the economy. We believe some market reactions are completely overblown. For instance, Dassault Aviation fell 9.8% despite being debt-free with a strong order backlog on higher defence spending. We are buying more of Dassault Aviation.