by Diana Mandia

(Reuters) – European stock markets ended higher on Monday as the results of the first round of early parliamentary elections in France calmed investors’ fears of an absolute majority for the National Rally (RN), whose programme includes a sharp increase in public spending.

In Paris, the CAC 40 gained 1.09% to 7,561.13 points. In Frankfurt, the Dax rose 0.47% and in London, the FTSE 100 gained 0.03%.

The EuroStoxx 50 index ended with a gain of 0.85%, the FTSEurofirst 300 by 0.29% and the Stoxx 600 by 0.44%.

The RN came out on top on Sunday in the first round of the legislative elections in France, ahead of the left-wing union of the New Popular Front and the coalition “Together for the Republic” formed around President Emmanuel Macron, an unprecedented situation but judged to be no bad surprise, while investors feared a more marked progression of the extreme right.

According to analysts, a National Assembly without an absolute majority of the RN remains the basic hypothesis, which gives hope for a limited increase in spending which would support the sustainability of the French debt.

France’s sovereign bonds have been under pressure since Emmanuel Macron’s surprise calling of elections last month, at a time when the budget deficit has already prompted the European Commission to pave the way for disciplinary proceedings against Paris.

A majority from the left alliance, which came in second place, also seems unlikely, which has also helped to relax the markets.

Uncertainty remains, however, as to the outcome of the second round on Sunday, the presidential camp having failed on Monday to define a clear line to break the dynamic of the RN and the first round of elections having given rise to an exceptional number of ” triangular” in which the extreme right has often come out on top.

VALUES

In terms of values, French banks, battered since the announcement of the early elections in France, progressed on Monday after the results of the first round: Société Générale, Crédit Agricole and BNP Paribas gained between 2.8% and 3.5%.

The European banking sector ended with a gain of 2.1%.

Air France-KLM fell 1.56% after announcing that it anticipated a negative impact on its unit revenues expected for the summer season, with operators Air France and Transavia France noting a drop in traffic linked to the Paris Olympic Games.

Sanofi, which could invest between 1.3 and 1.5 billion euros to modernize its insulin production site located in Germany, gained 2.1%.

A WALL STREET

At closing time in Europe, the Dow Jones gained 0.03%, the Standard & Poor’s 500 0.05% and the Nasdaq Composite 0.47%.

Spirit AeroSystems gained 3.5% after Boeing announced it would buy the fuselage supplier for $4.7 billion.

TODAY’S INDICATORS

In Europe, investors learned that manufacturing activity in the Eurozone had deteriorated and that German inflation had slowed more than expected in June, which could support expectations of a further rate cut by the Bank European Central (ECB) in September.

The president of the institution, Christine Lagarde, is also due to speak later today in Sintra, Portugal, during the institution’s annual forum.

In the United States, manufacturing activity contracted in June for a third consecutive month, according to the monthly survey from the Institute for Supply Management (ISM) published Monday.

Construction spending in the United States for May was also weaker than expected, falling 0.1%, compared with forecasts for a 0.2% increase.

CHANGES

The dollar gained 0.06% against a basket of reference currencies, and the euro gained 0.01% to 1.0720 dollars after touching its highest level in two weeks on Monday.

However, the currency has lost around 1.3% since early legislative elections were called in France.

RATE

Eurozone bond yields ended higher on Monday, a sign of continued nervousness about political risks in France.

Yields move inversely to bond prices.

The yield on the 10-year German Bund rose 11.7 basis points to 2.6040%, while the two-year gained 9.5 basis points to 2.9220%.

The yield on the ten-year OAT increased by 5.9 basis points to 3.3500%.

The spread, or premium of French bonds over their German counterparts, narrowed by 6 basis points to 74.1 basis points after reaching more than 82 basis points last week.

In the United States, the yield on ten-year Treasuries rose 13 basis points to 4.4732%, to its highest level since mid-June, at the start of a shortened week which will likely be marked by low volumes. .

The US bond market will be closed on Thursday due to the national holiday.

OIL

Oil prices rose on Monday as markets anticipated OPEC production cuts in the third quarter and increased demand this summer.

Brent rose 1.53% to $86.30 per barrel and American light crude (West Texas Intermediate, WTI) rose 1.66% to $82.89.

TO BE CONTINUED ON TUESDAY:

(Some data may be slightly out of date)

(Writing by Diana Mandiá, editing by Kate Entringer)

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