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CAC40: good start to the quarter, contraction in OAT/Bund spread

( - A good start to the 3rd quarter for French stocks: the CAC40 gained nearly 1.
1%, topping 7,700pts, in volumes that remained modest at 1.2 billion euros, which is very low indeed for the first session of the new stock market term (July).

The CAC40 was led by BNP-Paribas (+3%), Sanofi (+2.8%) and Sté Générale, despite Eurofins Scientific dropping 19%, penalized by rumors of short-selling circulating on the Internet following a vitriolic report by the Muddy Water Fund on the company's accounts.
Wall Street reopened on an indecisive note with +0.2% on the Nasdaq and +0.4% on the S&P500, gains insufficient to lift the historic resistances tested at the start of the session last Thursday.
The Dow Jones continues to try to make up ground with +0.8% towards 39,450 and the 40,075 are still around +2%.

The Paris market will be put to the test this week by a series of important events, not only on the economic front, but also in the political arena.

Investors may indeed be risk-averse ahead of Sunday's first round of parliamentary elections, the outcome of which will prove decisive for the country's future.

For the time being, foreign investors are taking a wait-and-see attitude, but they are beginning to envisage two worst-case scenarios: a grand coalition in which LFI would have significant economic clout, or the absence of an absolute majority for the RN, which could lead to the resignation of the President of the Republic", stresses Christopher Dembik, investment strategy advisor at Pictet AM.

All this is obviously very hypothetical", the market analyst moderates, however.

"Let's not forget that France has planned to borrow massively on the markets in July. We're going to have to reassure quickly", he warns.

An Ipsos poll currently gives the Rassemblement National and its allies around 35.5% of voting intentions, followed by the Nouveau Front Populaire in second place with 29.5% of the vote.

'We believe that European share prices are incorporating an appropriate risk premium while awaiting the results of the French elections', judge the strategists at UBS.

The spread between the French 10-year bond and the German Bund of the same maturity - which has now reached 80 basis points - will continue to be closely watched until Sunday.

Investors could also be cautious just a few days ahead of the first debate between Joe Biden and Donald Trump, scheduled for Thursday, in the run-up to the US presidential election in November.

The markets are also likely to remain plagued by uncertainty over the pace of inflation across the Atlantic.

Against this backdrop, market participants will be keeping a close eye on Friday's publication of the 'PCE' inflation index, which is particularly closely watched by the Fed.

In the meantime, this morning investors learned of a sharper-than-expected deterioration in German business confidence in June, showing that Europe's leading economy is not yet out of the woods.

The Ifo business climate index, calculated from a sample of some 9,000 companies, fell to 88.6 from 89.3 in May.
This was a three-month low.
Bonds remained calm, with +0.5pts on the Bund at 2.415% and the spread with the OAT (-3pts to 3.135%) contracting by -3.5pts to less than 72 basis points.
US T-Bonds remain unchanged at 4.256%, while UK Gilts are down solo by +3.3pts to 4.114%.
The euro is up +0.45% against the dollar, to $1.074.

In French company news, Safran announces that it has entered into exclusive discussions with a view to acquiring 100% of the capital of Preligens, a leader in artificial intelligence (AI) dedicated to the aerospace and defense industries, for an enterprise value estimated at 220 million euros.

Colas, the transport infrastructure business of the Bouygues group, announced on Monday that it had won seven road maintenance contracts in Finland, worth a total of 78.5 million euros.

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