A surprising and perhaps deceptive calm is gracing European markets at the start of a new trading week, with stocks poised for a positive open on Monday.
But this quiet optimism is a mere prelude to a day of high political drama, as the French government teeters on the brink of collapse, a high-stakes showdown that could inject a potent dose of instability into the heart of the Eurozone.
Despite the looming political storm, early indications point to a resilient start for equities. Data from IG suggests Germany’s DAX will open almost 0.5 percent higher, with France’s CAC 40 and Italy’s FTSE MIB both seen up 0.3 percent.
A high-stakes gamble in Paris
The entire region is now holding its breath for a parliamentary vote in France, where Prime Minister Francois Bayrou is widely expected to lose a confidence motion he himself called.
The high-stakes gamble was an attempt to break a bitter deadlock with rival political parties over a contentious package of 44 billion euros in budget cuts.
Bayrou’s goal was to bring France’s budget deficit down to 4.6 percent in 2026, a figure that is still well above the European Union’s official rules.
But with opposition parties fiercely objecting to both spending cuts and tax rises, his government has been paralyzed.
If, as expected, Bayrou is ousted on Monday, President Emmanuel Macron will be forced to name the country’s fifth prime minister in less than two years, a stunning level of political churn for one of Europe’s most powerful nations.
A global backdrop of turmoil and hope
This localized French drama is playing out against a complex and uncertain global backdrop.
Asia-Pacific markets traded mostly higher overnight, as investors continued to digest the aftershocks of Japanese Prime Minister Shigeru Ishiba’s resignation over the weekend.
In the United States, a different kind of anticipation is building. While US stock futures are little changed, the market is bracing for two critical inflation reports this week: the producer price index on Wednesday, followed by the all-important consumer price index on Thursday.
These reports will be the final, crucial pieces of the puzzle for the Federal Reserve ahead of its policy meeting later this month.
The inflation prints will land in a market already buzzing with hope for an interest rate cut, a sentiment fueled by a weaker-than-expected US jobs report on Friday.
For now, the prospect of easier monetary policy from the Fed is providing a powerful, if fragile, support for equities, a dose of optimism in a world grappling with a fresh wave of political instability.
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