by Diana Mandia

(Reuters) – European stock markets ended mixed on Monday as investors digested the victory of the left-wing alliance in France’s legislative elections, an unexpected outcome that raised a number of uncertainties over the next government of the euro zone’s second-largest economy.

In Paris, the CAC 40 lost 0.63% to 7,627.45 points. In Frankfurt, the Dax advanced by 0.07% while in London, the FTSE 100 dropped by 0.13%.

The EuroStoxx 50 index ended down 0.07% and the FTSEurofirst 300 down 0.05%. The Stoxx 600 gained 0.03%.

The victory of the New Popular Front (NFP) in the second round of early legislative elections in France has confounded the predictions of pollsters and allayed fears of a far-right government in Paris, while raising questions about the impact of a National Assembly divided into three blocs without a majority and therefore difficult to govern.

President Emmanuel Macron on Monday tasked outgoing Prime Minister Gabriel Attal with continuing to manage current affairs for the “stability” of the country, while uncertainty weighs on the future government architecture: while the left-wing alliance has begun discussions to agree on the name of a candidate for the post of Prime Minister, the presidential camp says it believes in a broader plural coalition.

Against this backdrop, Bruno Schneller, CEO of Erlen Capital Management, believes that while the prospects for increased public spending are low since neither the left nor the far right have won an absolute majority, a political risk premium is likely to persist and any market rebound is likely to be short-lived.

“The left-wing alliance is not seen as business-friendly and should generate less confidence in prudent fiscal management,” said Peter Schaffrik, strategist at RBC Capital Markets, adding that the lack of a clear majority should slow any immediate spending plans.

According to rating agency S&P Global, the lack of an absolute majority risks complicating policy-making and France’s credit rating could be “under pressure” in the event of persistent weakness in the economy or prolonged public deficits.

The prospect of a political impasse in France has also reduced optimism about a cut in Fed interest rates as early as September, a scenario reinforced by the employment figures published last Friday.

VALUES

In Paris, French banks BNP Paribas, Société Générale and Crédit Agricole, which have been struggling since the announcement of early legislative elections in June, lost between 0.4% and 1.7% on Monday. The European segment of the sector still rose by 11%.

French media groups TF1 and M6 gained around 1.7% after the RN failed to obtain the expected majority in the National Assembly, which analysts say pushes back a potential privatization of public broadcasting.

Companies linked to public works and concessions, such as Vinci and Eiffage, also finished in the green. According to Jefferies analysts, the orientation of the NFP program, which favors investments in infrastructure, is favorable to demand, while, without a victory of the RN, the possibility of a new tax on groups in the sector or of a nationalization seems to be moving away.

Elsewhere in Europe, Delivery Hero fell more than 7% as the German food delivery company said the European Commission could fine it more than €400 million for antitrust practices.

A WALL STREET

At the time of the European closing, the Dow Jones lost 0.20% and the Standard & Poor’s 500 0.01%, while the Nasdaq Composite gained 0.23%.

The Nasdaq and the S&P 500, however, reached records and the Dow climbed to a more than one-month high on Monday, supported in particular by semiconductor stocks such as Nvidia, Intel and Advanced Micro Devices.

TODAY’S INDICATORS

In the eurozone, investor morale deteriorated more than expected in July, ending eight consecutive months of increases, according to the Sentix index published on Monday, which fell to -7.3 points against 0.3 in June.

In Germany, exports fell by 3.6% in May compared to the previous month, weighed down by weak demand from China, the United States and European countries, according to data published Monday by the Federal Statistical Office.

CHANGES

At the time of the closing in Europe, the dollar gained 0.05% against a basket of reference currencies, while the euro lost 0.05% to 1.0831 dollars, even if the European currency recovered the losses suffered during the night due to the uncertainties of a hung French National Assembly.

RATE

Benchmark bond yields in the euro zone ended flat on Monday. The 10-year German Bund yield fell 1.5 basis points to 2.5170%, while the two-year yield gained 1.2 basis points to 2.9050%.

In France, the yield on the ten-year OAT fell to its lowest level in two weeks on Monday, as the second round of elections eased fears of a far-right victory, and ended down 4.5 basis points at 3.1690%.

The spread between German and French 10-year bond yields, which is used to measure investor confidence in sovereign debt and has been under pressure since the French president decided to call an unexpected election in June, narrowed to 64.7 points.

In the United States, the yield on ten-year Treasuries gained 1.3 basis points to 4.2861% and the two-year gained 3 basis points to 4.6285%, after last week’s declines and before the publication of CPI inflation for June next Thursday.

OIL

Oil prices retreated after recent gains. Concerns over supply disruptions eased on hopes of a Gaza ceasefire deal, but the potential impact of Hurricane Beryl kept losses in check.

Brent lost 0.84% ​​to $85.81 per barrel and American light crude (West Texas Intermediate, WTI) fell 0.99% to $82.34.

TO BE CONTINUED TUESDAY:

NATO summit opens in Washington.

(Some data may be slightly out of date)

(Written by Diana Mandiá, edited by Kate Entringer)

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