LONDON/SYDNEY, June 11 - French bonds fell sharply for a second day on Tuesday as did European stocks and the euro after the announcement of a snap election in France, while investor attention began to turn to Wednesday's U.S. inflation data and Federal Reserve meeting.
Europe's STOXX 600 index , opens new tab dropped 0.8% with France's CAC40 , opens new tab down 1.26% after a 1.35% loss on Monday. Banking stocks , opens new tab, such as Credit Agricole , opens new tab, Societe Generale , opens new tab, and BNP Paribas , opens new tab, were down between 3% and 4%.French bonds also sold off with France's 10-year yield up 7 basis points at 3.31% having jumped 8 bps on Monday.
"We'll see that higher uncertainty until the French elections, and so it's quite warranted to see higher spreads in the near term." Meanwhile, across the channel, investors were digesting data showing Britain's labour market showed more signs of cooling in April as the unemployment rate rose. The biggest scheduled economic events of the week are due on Wednesday, with U.S. consumer price inflation and the Federal Reserve policy decision.
"We think the leadership would prefer a two-cut baseline to retain flexibility, but a one-cut baseline is a possible risk, especially if core CPI surprises to the upside on Wednesday."Rate futures imply 38 basis points of Fed easing for this year, compared to 50 bps before the jobs report.