The CAC40's attempt to rebound beyond the 7,900 support level compromised the previous day did not last more than 2 hours.
Precautionary delistings resumed in earnest, with French stocks dropping from -1.2% to -1.3% towards 7.800 (annual gain reduced to around +3% vs. +10% for the Euro-Stoxx50), in the wake of heavy selling on OATs, with yields stretched to almost +10pts, to 3.335% (3.3000% now, i.e. +6pts).

But it's not this algebraic spread that's most worrying: it's the widening gap with the Bund, which is symmetrically easing by -3.5 basis points to 2.6400%.
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 +66/+67 basis points (i.e. +17 basis points in 48 hours).
The shockwave triggered 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 governance paralysis that France could face in the event of a cohabitation would constitute a further threat to the sovereign debt rating, which has already been downgraded in recent weeks", warns Mabrouk Chetouane, Head of International Market 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 with little room to maneuver to start easing rates.
If the FED remains "vigilant" on inflation, then Wall Street, which just broke new records on Monday evening (S&P500 and Nasdaq), could in turn begin a consolidation.
This would in turn weigh on the European indices, with the Euro-stoxx50 weakened by a -1.1% drop and a pullback below the 5.000 (down to 4,960).
Some observers are nonetheless pointing to the possibility of a rebound, with the current correction providing a good opportunity for cheap buy-backs of the CAC's most prized stocks.

Chris Weston, head of research at Pepperstone, points out that "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 a continued economic recovery in Europe, the ECB's rate cut, and the craze surrounding technology and AI stocks.

But this does not support the Euro, which continues its slide with -0.35% towards 1.0735.
Oil catches its breath after +3% gained on Monday, with 'Brent' consolidating by -0.6% towards $81.5 in London.

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