2025-10-06 10:09

PM Lecornu resigns French risk premium spikes to January high French banking shares, bonds under pressure Credit default swaps jump LONDON, Oct 6 (Reuters) - French stocks and the euro fell while France's borrowing costs jumped on Monday, as the government collapsed within hours of being appointed, fuelling uncertainty over the euro zone's second-largest economy. Prime Minister Sebastien Lecornu unexpectedly handed in his resignation to President Emmanuel Macron hours after announcing his cabinet line-up - making it the shortest-lived government in modern French history. Sign up here. Paris' $3 trillion CAC 40 index (.FCHI) , opens new tab dropped more than 1.3%, making it the worst-performing index in Europe. ONLY HOURS INTO THE JOB Shares in major lenders tumbled, leaving BNP Paribas (BNPP.PA) , opens new tab, Societe Generale (SOGN.PA) , opens new tab and Credit Agricole (CAGR.PA) , opens new tab down between 3% and 4%. The euro , which has weathered much of France's political turmoil in the last year, slid 0.2% on the day to $1.172. "There seems to be no willingness in parliament for a budget to be passed, so I think yields higher, pressure on euro-dollar in the near term," said Danske Bank analyst Kirstine Kundby-Nielsen. French mid-cap stocks were hit hard (.CACMD) , opens new tab, tumbling 2.6% and set for their largest one-day drop since April, while other European markets did not go unscathed either. The broader STOXX 600 (.STOXX) , opens new tab dipped 0.3%, Germany's DAX (.GDAXI) , opens new tab was a touch weaker. France has the largest budget deficit in the euro zone, which is almost double the European Union's preferred limit of 3%. Its problems take the shine off this year's European stocks rally, which has been driven by increased spending on security and infrastructure from the likes of Germany. France's long-term finances were already vulnerable, and politics has become increasingly unstable since Macron's re-election in 2022, given the lack of any party, or grouping holding a parliamentary majority. Successive prime ministers - France has now had three in under a year - have tried and failed to push through unpopular budgets and on Monday, Lecornu's cost him his job. "Lecornu’s resignation confirms that French bonds remain uninvestable. As long as there’s no majority in parliament, no one will be able to tackle France’s debt and fiscal problems," Mathieu Savary, BCA Research chief strategist of developed markets ex-U.S., said. "The problem is that dealing with this issue will most likely demand a full-blown crisis in the (bond) market to discipline French politicians," he said. BORROWING COSTS SOAR French bond prices dropped, pushing yields on benchmark 10-year debt up as much as 9 basis points to nearly 3.6%, before retreating to 3.563%. That left the premium investors demand to hold French debt, rather than triple-A rated German paper , at 85 bps, near its highest since January. This spread hit a 2012 high of 90 bps last November. Investors are worried about France's creditworthiness, compounded by a ratings downgrade last month. On Monday, credit default swaps - a derivative that reflects the cost of insuring against a sovereign default - rose to 41 bps, the most since April, up from 38 bps on Friday. "The bigger question is how does this all resolve itself?" said Pepperstone senior research strategist Michael Brown. "Because there doesn’t seem to be an obvious solution or obvious silver bullet that we can look to, to resolve it overnight." https://www.reuters.com/business/finance/french-markets-euro-battered-government-collapses-2025-10-06/

2025-10-06 10:09

MUMBAI, October 6 (Reuters) - The Indian rupee held in a tight band on Monday, staying just above its record low as likely intervention by the Reserve Bank of India helped stave off pressure stemming from local importers' steady dollar demand. The rupee closed at 88.78 against the U.S. dollar, nearly flat on the day and in touching distance of its record low of 88.80 hit last week. Sign up here. Several traders said that state-run banks were spotted offering dollars through much of the session, most likely on behalf of the RBI. The RBI "has been present near these levels and seems to be protecting it firmly for now," a trader at a private bank said. "If 88.80 breaks, 89 becomes the next level to watch," he added. Persistent worries over the hit to trade, portfolio and remittance flows from steep U.S. tariffs and tighter immigration policies has kept the rupee bogged down over the last few weeks and driving it down over 3.5% on the year despite broad weakness in the dollar. On the day, India's benchmark equity indexes, the BSE Sensex (.BSESN) , opens new tab and Nifty 50 (.NSEI) , opens new tab were up 0.7% each. Traders expect foreign portfolio inflows spurred by two large initial public offerings could offer the rupee some comfort later in the week. Non-bank lender Tata Capital's $1.75 billion share sale kicked off on Monday while LG Electronics India will open its $1.3 billion IPO on Tuesday. "Interestingly, downside risks to (India's) growth remain, but policy stimulus is nearing its limits. We believe if tariffs endure and growth slows materially in the second half of fiscal 2026, asset prices could correct further, potentially impacting the INR as well," analysts at ANZ said in a note. Meanwhile, a drop in the Japanese yen and the euro helped boost the dollar on Monday as political risks across continents came into focus for investors with the new election of a new leader in Japan and the resignation of France's Prime Minister. https://www.reuters.com/world/india/rupee-boxed-by-persistent-importer-hedging-central-bank-intervention-2025-10-06/

2025-10-06 09:43

LONDON, Oct 6 (Reuters) - A selloff in French markets gathered pace on Monday after French media reports that Prime Minister Sebastien Lecornu has resigned. French stocks fell sharply (.FCHI) , opens new tab, government bond yields were up 8 basis points and the euro was last down 0.65% at $1.1667 . The premium investors demand to hold French government debt, rather than benchmark German bonds, hit its widest since January. Sign up here. COMMENTS: CARLO FRANCHINI, HEAD OF INSTITUTIONAL CLIENTS, BANCA IFIGEST, MILAN: "French banks are getting hammered today and the spread against Bunds is widening sharply. The situation in France is increasingly complicated - politically and economically. I don't think Macron will resign. That would likely make things worse, especially with the populist wave sweeping across Europe and the risk of far-right gains. Volatility is likely to persist, but so far, markets seem to be absorbing the shock. There's no major spillover yet, though French banks are clearly bearing the brunt." PHILIP SHAW, CHIEF ECONOMIST, INVESTEC, LONDON: "French bond spreads have widened out, which is not surprising, but the move looks contained. You could argue Lecornu's task was impossible and the measures he was proposing. "The impasse is likely to going to continue. There is already a certain degree of uncertainty price in. One question is does this mean we are heading to fresh elections but at this point it hard to tell what (French President Emmanuel) Macron will do. "We have been here before, but elections did not solve (it)." CHRIS BEAUCHAMP, CHIEF MARKET ANALYST, IG GROUP, LONDON: "It's just one government after another and we're looking at the run of finance ministers ... this is the major problem for French assets but it has spillover effects for the rest of Europe. "It certainly makes people wary about European assets at this point because of the uncertainty and the spillover effects that go from France just being unable to find its way out of this malaise." STEPHANE EKOLO, GLOBAL EQUITY STRATEGITST, TRADITION, LONDON: "This unprecedented move — the first time under the Fifth Republic that a prime minister has stepped down before addressing Parliament — pushes France into uncharted political territory. Given the impasse, the likelihood of a parliamentary dissolution and snap elections has risen materially. Alongside this political uncertainty/crisis, one can expect an economic one (sentiment is likely to deteriorate) given the uncertainty surrounding the wide budget deficit. "Is France heading toward the appointment of a technical government, the nomination of yet another prime minister, or even a snap election? Alternatively, could the country face a prolonged political vacuum similar to Belgium’s 18-month government hiatus? "What seems clear for now is that France will be unable to present a budget before year-end, underscoring the depth of the current political paralysis. Banks & financials overall are likely in this uncertainty to be under pressure." MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON: "The market reaction is exactly as you would expect, the euro is lower, (French) OAT-Bund spread wider, French equities lower -- that’s all very predictable. The bigger concern for the market is really what comes next, because if Macron decides to appoint another prime minister that’s going to be the sixth PM in two years, who will again face the exact same challenging parliamentary arithmetic, the exact same problems when trying to pass the budget, so that feels a little like a non-starter. "The thing that is really playing on market participant’s minds is not really the fact that the PM has quit - which has clearly come as a bit of surprise, though his future was looking ropey this week anyway, I think the bigger question how does this all resolve itself? Because there doesn’t seem to be an obvious solution, or obvious silver bullet that we can look to, to resolve it overnight." LEE HARDMAN, SENIOR CURRENCY ANALYST, MUFG, LONDON: "The fall in the euro shows markets are becoming more uneasy about the political uncertainty in France. The pressure now goes back to President Macron to see how he deals with this deadlock. For the market, the worst case would be if he tries to break that deadlock by calling snap parliamentary elections, that would extend the uncertainty in the near term and likely trigger another leg lower for the euro. The risk of that has increased after Lecornu's resignation." KIRSTINE KUNDBY-NIELSEN, ANALYST, DANSKE BANK, COPENHAGEN: “It’s concerning that the new cabinet only lasted 12 hours. There seems to be no willingness in parliament for a budget to be passed, so I think yields higher, pressure on euro-dollar in the near term. “There doesn’t seem to be a willingness to get lower government deficits and consolidate French public finances and investors want a premium for that.” KIT JUCKES, CHIEF FX STRATEGIST, SOCIETE GENERALE, LONDON: "This is ongoing issue - France - as far as the euro is concerned. France can have some impact on the euro, but the overall impact is much less than it was." https://www.reuters.com/business/view-french-markets-tumble-after-pm-lecornu-resigns-2025-10-06/

2025-10-06 08:39

Lagarde: inflation risk range has narrowed Lane: increasing downside risk may warrant more policy easing Markets see almost no chance of a rate cut this year FRANKFURT, Oct 6 (Reuters) - The European Central Bank may need to reduce borrowing costs slightly if the risk of inflation going too low increases, but interest rates are appropriate now, the ECB's top brass said on Monday. The central bank for the 20 euro zone nations has cut interest rates by 2 full percentage points in the year to June but rates have been on hold ever since as the bank debates whether to go lower or level off at the current 2% since inflation is now at target. Sign up here. "Shifts in the risk distribution will also matter for our rate decisions: an increase in the likelihood or intensity of downside risk factors would strengthen the case that a slightly lower policy rate might better protect the medium-term inflation target," the ECB's chief economist, Philip Lane, said in a speech in Frankfurt. "Alternatively, an increase in the likelihood or intensity of upside risk factors would indicate that maintaining the current policy rate would be appropriate in the near term." However, ECB President Christine Lagarde argued that the risk of undershooting the 2% target was shrinking even though trade tensions with the U.S. keep the outlook uncertain. "As new information has come in, the range of risks on both sides has narrowed," Lagarde told lawmakers in Strasbourg. Financial markets see almost no chance of another rate cut this year and comments from Lagarde and ECB Vice President Luis de Guindos only strengthened those expectations. "We could say that risks for inflation are balanced and that our projections, which showed that the price stability objective can be secured in some way, are being fulfilled to some degree," de Guindos told an event in Madrid. "We consider the current level (of interest rates) to be appropriate based on recent inflation trends." But the jury is still out. Some policymakers fear that the full extent of U.S. tariffs is yet to be felt and a strong euro will hurt exporters while pulling overall inflation below the ECB's 2% target. Lane noted that the stronger euro has a multi-year impact on activity and inflation, and the underlying reasons for the currency movement affect the extent of the price shock. "These effects will be larger than the average if euro appreciation is more due to external factors, such as weakness in main trading partners or portfolio rebalancing due to an increase in the risk premium in overseas financial markets," he said. The euro is up 13% against the dollar since the start of the year as investors have reduced dollar holdings owing to concerns about erratic U.S. economic policy. https://www.reuters.com/business/rising-risk-undershooting-would-support-slight-cut-ecb-rates-lane-says-2025-10-06/

2025-10-06 08:11

Oct 6 (Reuters) - J.P. Morgan upgraded its stance on the euro zone to "overweight" from "neutral" on Monday, noting that the equities in the region have become more attractive after several months of underperformance and policy support. "The time is coming up to turn bullish on Eurozone equities," J.P. Morgan strategists, led by Mislav Matejka said. Sign up here. Euro Stoxx 50 (.STOXX50) , opens new tab has trailed the S&P 500 (.SPX) , opens new tab by nearly 18% since a strong first-quarter rally, but this relative underperformance could be used as a buying opportunity, Matejka said. The strategists noted that with relatively cheaper valuations than their U.S. counterparts, and potential catalysts such as German stimulus, and improving euro zone credit impulse, could renew sentiment in the region. The 15% tariff on European Union goods has also put to rest one of the major overhangs on the region's equities, J.P. Morgan said. The brokerage retained its positive stance on European defense stocks, as it expects capital expenditure to be constructive and boost parts of industrials, construction materials and utilities. While the uncertainty in France could create an overhang, Matejka said, "We would use the weakness to buy, as we believe that any pressure will not be long-lasting." The potential uptick in earnings and rise in share buybacks could also help underpin the euro zone's more optimistic outlook heading into next year. The Wall Street brokerage reiterated its year-end target of 5,800 for the Euro Stoxx 50. The index is up 10.4% year-to-date, according LSEG data. https://www.reuters.com/business/jp-morgan-upgrades-euro-zone-overweight-cites-attractive-equities-2025-10-06/

2025-10-06 07:57

BUDAPEST, Oct 6 (Reuters) - Hungary should not adopt the euro currency as the European Union is "disintegrating" and Hungary should not tie its fate closer to the bloc, Hungarian Prime Minister Viktor Orban said on Monday in an interview with economic news site EconomX. Hungary, which depends for most of its trade on the 27-member bloc and has modernised its economy with billions of euros of EU funds since it joined two decades ago, does not currently meet the conditions for euro adoption. Sign up here. Unlike Denmark, Hungary does not have a legal opt-out from joining the currency bloc. Some of its neighbours in the EU's eastern wing, including Poland, the Czech Republic and Romania, also remain outside the euro area, at least for now. In power since 2010, Orban has become an increasingly vocal critic of the EU, which has suspended billions of euros of funds for Hungary due to the nationalist leader's rule-of-law reforms. "Hungary should not tie its fate closer to the European Union than now, and adopting the euro would be the closest possible link," he said. Orban's comments were in stark contrast to the policy agenda of his surging opposition rival Peter Magyar, who is campaigning on a pledge to unfreeze suspended EU money and bring one of the EU's poorer economies closer to euro adoption. Parliamentary elections are going to be held in spring 2026. The date has not yet been set. While Orban has avoided direct comment on central bank policy since Mihaly Varga, his former finance minister, took over in April, he said on Monday that the bank's 6.5% main interest rate, the EU's joint-highest, was "higher than it could be". The bank marked a year-long pause in rate easing in September, which has helped the forint strengthen to a 15-month high versus the euro as the bank seeks to stem a flow of domestic savings towards foreign currencies, including the euro. https://www.reuters.com/business/pm-orban-says-hungary-should-not-adopt-euro-eu-is-disintegrating-2025-10-06/