by Diana Mandia
(Reuters) – European stock markets ended in mixed order on Tuesday, in a context marked by the political crisis in France, where Sébastien Lecornu is consulting political forces in order to find a compromise on the budget after his sudden resignation, while President Emmanuel Macron appears more and more isolated.
In Paris, the CAC 40 gained 0.04% to 7,974.85 points, an increase identical to that of the German Dax. In London, the FTSE 100 gained 0.05%.
The EuroStoxx 50 index, on the other hand, ended down 0.27%, the FTSEurofirst 300 lost 0.17% and the Stoxx 600 dropped 0.15%.
Caution remains in order in Europe as the countdown has begun in France, the second largest economy in the euro zone, to find a way out of the crisis triggered on Monday by the unexpected resignation of Prime Minister Sébastien Lecornu after less than a month in office and with the 2026 budget in an impasse.
The one who was appointed head of the executive at the beginning of September continues his consultations with the political forces, following the instructions of President Emmanuel Macron, who granted him on Monday 48 additional hours of last chance negotiations aimed at defining “a platform of action and stability for the country”, in the words of the Elysée.
President Emmanuel Macron is also facing growing pressure for an early departure, a demand which now emanates not only from La France insoumise (LFI) and the National Rally (RN), but also from former fellow travelers, such as ex-Prime Minister Edouard Philippe.
Evelyne Gomez-Liechti, strategist at Mizuho, believes, however, that most of the adjustment concerning French sovereign debt has probably already taken place, the bond market having stabilized on Tuesday after a tense session the day before which saw the gap between the French OAT and the ten-year German Bund reach its highest level since January 13.
“What does this mean for OATs? The situation does not seem very encouraging, but France is too big to go bankrupt,” she wrote in a note.
Investors are also starting to look towards the next financial accounts season, which will begin in a few days and during which European companies could record their worst quarterly results since the start of 2024.
VALUES
The two major luxury stocks in Europe, LVMH and Kering, supported the CAC 40 on Tuesday with gains of 3.6% and 5.7% respectively, after a change of recommendation from Morgan Stanley to take into account a “creative supply shock” observed in the sector.
Valneva lost 5.5% after lowering its revenue target for this year, and Nexans dropped 4.8% after Jefferies lowered its recommendation on the French cable maker from “buy” to “hold.”
Elsewhere in Europe, the Danish group Novo Nordisk fell 2.8%, penalized by the rejection by an American court of its appeal against the Medicare drug price negotiation program.
B&M lost 7.8% as the discount retailer warned on Tuesday of a fall in annual profit due to weak sales in the UK.
A WALL STREET
The New York Stock Exchange turned lower on Tuesday, a day after closing records for the S&P 500 and the Nasdaq, as attention focused on US monetary policy and a series of statements from Fed officials scheduled for later in the day.
At closing time in Europe, the Dow Jones fell by 0.37%, the Standard & Poor’s 500 by 0.52% and the Nasdaq Composite by 0.83%.
A report released Tuesday by the New York Fed shows that Americans were more worried about the future of the job market in September, while revising upwards their forecasts regarding the evolution of inflation in the short term.
Investors are keeping an eye on the situation across the Atlantic where the “shutdown” continues in the administration due to lack of agreement between Republicans and Democrats on the budget.
CHANGES
On the foreign exchange market, the greenback gained 0.32% against a basket of reference currencies, while the euro, affected by fears over French policy, fell 0.32% to 1.1671 dollars.
RATE
Euro zone bond yields rose slightly on Tuesday, as the unexpected resignation of French Prime Minister Sebastien Lecornu deepened the political crisis in Europe’s second-largest economy.
The yield on German 10-year bonds, the benchmark for the euro zone, ended virtually unchanged at 2.7117%, while that of the OAT with the same maturity rose 0.5 basis points to reach 3.5725%.
The “spread”, or difference in yield on 10-year French bonds and German Bunds with the same maturity, which reflects the risk premium required by investors to hold French debt, stands at 86.27 basis points.
In the United States, the yield on ten-year Treasuries fell by 3.1 basis points to 4.1307%. The two-year yielded 1.7 basis points to 3.5801%.
Federal Reserve Governor Stephen Miran, for his part, said Tuesday that the current relative calm in the bond market justified an aggressive cut in interest rates in the United States.
OIL
Oil prices fell slightly on Tuesday as investors weighed the smaller-than-expected increase in OPEC+ production announced for November amid concerns of oversupply.
Brent lost 0.17% to $65.36 per barrel and American light crude (West Texas Intermediate, WTI) lost 0.06% to $61.65.
METALS
Gold reached a record high on Tuesday, at $3,977.19 per ounce, amid demand for safe-haven assets and bets on a Fed rate cut as the shutdown continues in the United States.
TO BE CONTINUED ON OCTOBER 8:
(Some data may have a slight lag)
(Writing by Diana Mandiá, editing by Kate Entringer)
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