Europe's stock markets ended the day lower on Tuesday, against a backdrop of political uncertainty in France, as negotiations to form a new government proved complex after the left-wing alliance failed to win an absolute majority in the second round of parliamentary elections.

In Paris, the CAC 40 lost 1.56% to 7,508.66 points. In Frankfurt, the Dax was down 1.34% and in London, the FTSE 100 gave up 0.66%.

The EuroStoxx 50 index ended down 1.44%, the FTSEurofirst 300 0.90% and the Stoxx 600 0.99%.

Uncertainty over the political future of the eurozone's second-largest economy continues to weigh on European indices, notably the CAC 40 and French banks, as negotiations have yet to clarify the structure of the next French government, with an Assembly divided into three major blocs and no absolute majority.

The left-wing alliance promises to nominate a candidate in the next few days, but uncertainty remains over the method and the balance of power within the group, while the presidential camp says it is ready to discuss with all members of the "Republican arc", excluding Rassemblement National (RN) and LFI.

According to Moody's, this fragmentation is negative for the country's credit rating, and the absence of an absolute majority in the new National Assembly is likely to make decision-making and control of public debt more difficult, an observation similar to that made by S&P on Monday.

"We'll have to see how the rating agencies judge France in the coming months, remembering that (its) 'AA' status is at risk, in our opinion," said Mauro Valle, head of bonds at Generali Asset Management.

In the U.S., Federal Reserve (Fed) Chairman Jerome Powell hinted to U.S. senators on Tuesday that the case for an interest rate cut was increasingly compelling, even if the lack of a precise timetable somewhat disappointed investors, sending the dollar and bond yields higher.

"The market is counting down the days until we get a rate cut signal from Federal Reserve Chairman Powell, and I think some in the market were expecting a more concrete step towards rate cuts later this year," said Adam Button, chief currency analyst at ForexLive.

VALUES

On the value side, Dassault Systèmes , which on Tuesday reported a shortfall in second-quarter sales and revised its annual targets downwards, lost 5.1%, the biggest drop on the CAC 40.

French banking stocks, including BNP Paribas, Société Générale and Crédit Agricole, continued to decline against a backdrop of political uncertainty, finishing in the red.

Glass group Verallia was down more than 18% after announcing that it had lowered its adjusted Ebitda forecast for 2024.

Artificial heart manufacturer Carmat, which reported half-year sales of 3.2 million euros on Tuesday, ended the day with a 5.3% gain.

Elsewhere in Europe, British oil major BP was down 4.3% after announcing that it expected lower realized refining margins and weak oil trading to adversely affect its second-quarter financial results.

ON WALL STREET

At closing time in Europe, the Dow Jones lost 0.12%, the Standard & Poor's 500 gained 0.20% and the Nasdaq Composite gained 0.25%, the latter two having hit new all-time highs on Tuesday, buoyed by semiconductors and technology.

CURRENCIES

On the foreign exchange market, the dollar gained 0.17% against a basket of benchmark currencies, as the Fed Chairman failed to give a clear timetable for interest rate cuts.

The euro lost 0.12% to $1.0808, hit by political turbulence in France.

RATES

Bond yields rose on Tuesday against a backdrop of political uncertainty in France and as the Fed chairman said that more positive inflation data would strengthen the case for a rate cut, without giving a precise timetable.

The ten-year German Bund yield gained almost 4 basis points to 2.5580%, while the two-year gained almost 2 to 2.9270%.

In France, uncertainties over the political situation put pressure on the yield on the ten-year OAT, which gained almost 9 basis points to 3.2580%.

The spread between French and German long-term bonds widened on Tuesday to 69 basis points.

In the United States, the yield on ten-year Treasuries rose by 5.6 basis points to 4.3252%, while the two-year gained 3.4 basis points to 4.6515% after Jerome Powell's speech.

OIL

Crude oil prices retreated on Tuesday, as Hurricane Beryl caused less damage than expected to oil installations in the Gulf of Mexico, easing fears of supply disruptions.

Brent crude gave up 0.68% to $85.17 a barrel, while US light crude (West Texas Intermediate, WTI) was down 0.62% to $81.82.

NEXT WEDNESDAY JULY 10: (Written by Diana Mandiá, edited by Blandine Hénault)