It's a bit of a repeat of Monday, July 1: the Paris stock market seemed relieved by the verdict of the polls (the CAC quickly gained nearly 0.9%, towards 7,745 points), but quickly, buyers became less present (which makes the thesis of short-buybacks highly plausible because the worst didn't happen) and the soufflé fell back.

The CAC40 returned to equilibrium, then began to crumble (-0.1% to 7,665pts) despite new records on Wall Street, which started the week on the right foot.
And so here we have a 25th annual record for the Nasdaq (+0.3% to 18,401) and a 35th for the S&P500 (+0.3% to 5,582), with the Dow Jones gaining +0.6% to 39,600 (but still no retest of the 40,000 mark, still 1% short).

The polls put the left-wing New Popular Front (NFP) alliance in the lead (182 seats), ahead of the presidential party (168 seats) and the National Rally (143 seats), considered the evening's big loser.

The financial markets - which feared above all a surge of the extremes - seem to be welcoming this scenario with a certain serenity this morning.

The prospect of a divided Assembly offers the advantage, from the point of view of some observers, of complicating the implementation of measures deemed unfavorable to the markets, such as a rise in taxation or a further drift in public finances.

'On the whole, we think investors will be satisfied that the worst-case scenario has been avoided, namely that the RN or NFP has an absolute majority', believes Jack Allen-Reynolds, economist at Capital Economics.

But things are still far from looking good for France", he stresses.

"Given the dissension in the Assembly, it will be difficult for any government to succeed in passing the budgetary measures needed to bring France into line with European rules and put its public debt back on a sound trajectory", adds Jack Allen-Reynolds.

A period of uncertainty is thus about to begin, even a sort of 'third round', as we wait to find out who the next Prime Minister will be.

'It's not clear what's going to happen now', admits Jack Allen-Reynolds, at Capital Economics.

Emmanuel Macron will have to appoint a head of government, and given that the NFP has a relative majority, the latter could ask for one of its candidates to be chosen as the future Prime Minister", warns the economist.

"Forming a new government is going to be an arduous task", add the teams at Commerzbank.

Against this backdrop, the performance of French government bonds and the spread with their German equivalents will once again be closely watched in the bond compartment today.

For the time being, all is well in Europe: the 10-year German Bund is easing by -2pts to 2.514%, while the OAT of the same maturity is erasing -4pts to 3.17% (the spread is contracting to +66pts).

On the currency markets, the euro is gaining +0.05% against the dollar, at around $1.0845/EUR.

While the French political situation and its impact on the economy remain a major unknown for the markets, they will have to contend with other causes for concern in the days ahead.

Tomorrow's Congressional hearing of Jerome Powell, Chairman of the US Federal Reserve, could confirm the prospect of a rate cut after the summer, should inflation continue to move in the right direction.

Thursday will see the publication of the last consumer price figures to be released before the Fed's next strategy meeting, scheduled for July 31, which should confirm the recent slowdown in inflation.

Finally, the second-quarter earnings season kicks off on Friday, with the accounts of major US banks JP Morgan, Citi and Wells Fargo.

In French company news, Veolia announces that it has reached an agreement with the Moroccan authorities for the sale to Société Régionale Multiservices Casablanca-Settat of its entire stake in Lydec, acquired when Suez took control in 2022.

Virbac has raised its targets for 2024, aiming for sales growth at constant exchange rates of between 12.5% and 14.5% (organic growth now expected to be between 7% and 9%).

AB Science reports positive results from a Phase 2 study evaluating the safety and efficacy of its masitinib combined with isoquercetin in hospitalized patients with moderate or severe Covid-19.


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