The Paris stock market continued its contraction, losing 1.33% today to 7,789 points, still penalized by the sharp decline in the banking sector, with Societe Generale down 5% and Crédit Agricole and BNP Paribas down 3.9%.

The CAC's mid-morning slide was triggered in the wake of a sharp sell-off in OAT yields, which rose by almost +10pts to 3.335% before easing sharply to 3.25%.

But while 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. around +15 basis points in 48 hours).

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

'The paralysis in terms of governance 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.

While there's absolutely no suspense as to whether rates will remain at 5.25/5.50, or 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 - may well show that the pace of inflation leaves the central bank little room to start easing rates.

Meanwhile, the euro continues to slide, down -0.33% towards $1.073/E.

Oil is catching its breath after gaining 3% on Monday, with Brent crude stagnating at around $82 a barrel.

In French company news, Sanofi and Regeneron announced on Tuesday that the US Food and Drug Administration (FDA) had approved their monoclonal antibody Kevzara for the treatment of polyarticular juvenile arthritis.

Safran announced that Safran Aircraft Engine Services Brussels, a subsidiary of Safran Aircraft Engines, has inaugurated a new maintenance workshop for the LEAP-1 engine at Brussels Airport.

TF1 falls by more than -6% as Sébastien Chenu, debater and vice-president of the Rassemblement National (RN), indicated yesterday on BFM TV that the party might consider privatizing public broadcasting (and therefore France Télévisions and Radio France) if it wins the next legislative elections (06/30 and 07/07), points out Oddo BHF in its analysis of the day.


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