The Paris Bourse suffered heavy losses on Monday following yesterday's shock European election results and the announcement of the forthcoming dissolution of the French National Assembly, which triggered a strong sell-off in the market.

At around 11:15 a.m., the CAC 40 index fell by almost 2% to 7,844.7 points, its lowest level since February.

Although its decline was slightly less pronounced than at the opening (-2.4%), it brought its gain since the start of the year to 4%.

The other European stock markets managed to limit their decline. Frankfurt is down 0.8%, the Euro STOXX 50 is down 1.2% and London is down 0.4%.

While the main topic of the week was supposed to be the Federal Reserve meeting, scheduled for Wednesday, the theme of politics was suddenly invited onto the markets this morning.

In particular, the victory of the Rassemblement National, with 31.4% of the vote, in the European elections has triggered a political and financial storm that extends far beyond France's borders.

In response, French President Emmanuel Macron has decided to dissolve the National Assembly, a first since 1997, and early elections will be held on June 30 and July 7.

This shock has opened up a period of questioning regarding the evolution of the French political panorama.

'In an extremely short campaign, everything suggests that the RN will be the leading party in the future Assembly', forecast Oddo BHF's teams.

Logically, the President should appoint the Prime Minister from this party and prepare for a 'cohabitation'," predicts the private bank.

According to IG France, this phase of political uncertainty offers investors a window of opportunity to take some of their gains on the index.

In this phase of political stress, investors - and foreign investors in particular - may choose to 'desensitize' their exposure to the French index for a while, until the situation becomes clearer", stresses Alexandre Baradez, Head of Market Analysis at IG France.

The strategist points out that the CAC has until now been one of the most expensive European indices, with a price-earnings ratio (P/E) close to 16x, compared with 9.2x for the Italian FTSE MIB or 11.3 times for the Spanish IBEX.

The banking sector suffered the biggest drop of the day, with losses of over 7% for Société Générale, 5% for BNP Paribas and 4% for Crédit Agricole in anticipation of tighter market conditions.

On the bond market, the French 10-year yield tightened by eight basis points to 3.18% after the elections, and the German bond yield by three basis points to 2.64%.

The euro is deepening its losses against the dollar, falling to a one-month low against the greenback at around 1.0750.

Early indications from futures suggest that Wall Street will open with a moderate decline on Monday.

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