The Paris stock market gained nearly 0.9% this morning to 7,745 points, led by Eurofins Scientific and Crédit Agricole (+2.2%), the day after the 2nd round of legislative elections.

The left-wing 'Nouveau Front Populaire' (NFP) alliance came out on top (182 seats), ahead of the presidential party (168 seats) and the Rassemblement National (143 seats), considered the big loser of the evening.

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 tax hike or a further drift in public finances.

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

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

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

This will open up a period of uncertainty, a sort of 'third round', as we wait to find out who the next Prime Minister will be.

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

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

The formation of a new government will be an arduous task", adds Commerzbank's team.

Against this backdrop, the performance of French government bonds and the gap with their German equivalents will once again be closely watched on the bond markets today.
This morning, the 10-year German Bund is trading at around 2.54%, while the OAT for the same maturity is stable at around 3.21%.

On the currency markets, the euro is currently weakening against the dollar, but to a moderate extent, at around $1.0825/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, however, 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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