After an attempt by the CAC40 to rebound above the 7,900 support level was quickly halted, the precautionary sell-offs resumed in earnest.
The CAC40 dropped -1.3% and is now threatening to finish below 7,800Pts.800Pts, with a trading volume of 2.6 billion euros, roughly double that seen at the end of May.

The annual gain is down to around +3%, compared with +10% for the Euro-Stoxx50, which is down -0.9%, under the impact of declines by BNP (-4.4%), Vinci and Kering (2.6%).

The CAC's mid-morning stall followed in the wake of heavy selling on OATs, with yields rising by almost +10pts to 3.335%, before easing abruptly to 3.25% as Jordan Bardella -potential Prime Minister on the evening of July 7- backtracked on the invalidation of the French Retirement Act and the extension of careers by 2 years.

But if the OAT is easing a little, it is widening the gap with the Bund, which is symmetrically easing -5.3 basis points, to 2.6220%.

Last Friday, the Bund was yielding 2.49% and our OATs 2.98% (i.e. a spread of 49 basis points). Today, the spread has widened to +63 basis points (i.e. +15 basis points in 48 hours).

The shockwave caused by Sunday's European election result continues to weigh on French assets (equities and bonds alike), and aversion to uncertainty seems to be continuing.

'The paralysis in terms of governability that France could face in the event of a cohabitation would constitute a further threat to the sovereign debt rating, already downgraded in recent weeks', warns Mabrouk Chetouane, Head of International Markets Strategy at Natixis IM.

Foreign investors could also adopt a wait-and-see attitude towards France", adds the analyst.
This particular political context overshadows the markets' other favorite 'subjects', starting with the Federal Reserve's monetary policy decision expected tomorrow evening.
Wall Street is cautious, with the S&P500 at -0.3% and the Dow Jones at -0.6%.

While there is absolutely no suspense as to whether rates will be maintained at 5.25/5.50, nor as to the 3-month projections (rates maintained in July), the Fed's comments on inflation will perhaps fuel hopes of an easing in September, even if this hypothesis now attracts only 47% of the vote, compared with 70% last week.

The summary of economic projections ('dot plots') should reveal that the committee has reduced its rate cut forecasts for this year.

Before that, consumer prices - to be released tomorrow before the opening - could well show that the pace of inflation leaves the central bank with little room to manoeuvre when it comes to starting to ease rates.

If the FED is 'vigilant' on inflation, then Wall Street, which just broke new records on Monday evening (S&P500 and Nasdaq), could in turn start to consolidate.

This would in turn weigh on the European indices, with the Euro-stoxx50 weakened by a -1.1% drop and a pullback below 5,000 (down to 4,960).

Some observers nonetheless point to the possibility of a rebound, with the current correction providing a good opportunity for cheap buybacks on the CAC's most prized stocks.

Chris Weston, head of research at Pepperstone, points out: "The French stock market is only marginally representative of the Hexagonean economy.

Only 15% of the sales of the index's components come from France", he adds.

Other reasons for optimism at the moment include the prospect of further economic recovery in Europe, the ECB's rate cut, and the craze surrounding technology and AI stocks.

But this is not supporting the Euro, which continues to slide, down -0.45% towards $1.0725.

Oil is catching its breath after gaining +3% on Monday, with Brent crude consolidating -0.8% towards $81.3 in London.

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