The Paris Bourse looks set to close well off the day's lows, but continues to post heavy losses on Monday (-1.8%) following yesterday's shock European election results and the announcement that the French National Assembly will soon be dissolved.
The resulting political and economic uncertainty triggered a strong sell-off in the market, targeting banking stocks in particular (yields tightened by +11pts in France and Italy, where the right-wing - described as extreme - has established itself as the leading political force in these 2 countries).

At around 5 p.m., the CAC 40 index was hovering around 7,860 points, in a slightly higher volume of 2.5 billion euros (far from a massive sell-off), and was at its lowest level since February (the annual gain was reduced to +4%).

The other European stock markets largely managed to limit their decline. Frankfurt gave up 0.6%, the AEX only -0.1% and the Euro STOXX 50 lost 1% but "saved" the 5,000 mark (the index was weighed down by our banking stocks, with Sté Générale down 8% and BNP-Paribas down -5.5%, Vinci -5%... and luxury goods).
Wall Street reopened without direction, with the S&P500 down -0.1%, while the Dow Jones was stable and the Nasdaq posted +0.1%.

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

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", predict 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 a little while they wait for a clearer picture", points out Alexandre Baradez, Head of Market Analysis at IG France.

The strategist points out that, until now, the CAC has 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

On the bond market, the French 10-year yield tightened by 12.5 basis points to 3.235% after the elections, and that of the German bond by 5.5 basis points to 2.662%.
T-bonds are down +4pts to 4.47% 48 hours ahead of the FED's final statement, with rates expected to remain unchanged at 100% and 60% until Q4 2024.

The euro widens its losses (-0.6%) against the dollar, falling to a 1-month low of around 1.07350 against the greenback.

Brent crude rebounded by 1.6% to $80.7 a barrel, and gold climbed back above $2,300 (its sharp fall on Thursday and Friday was caused by interest-rate tension and rumors that the PBOC would halt Chinese purchases of physical gold)

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