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Europe's STOXX 600 index flat, euro steady

written by Bella Palmer

Europe's STOXX 600 index was flat with France's CAC40 0.3% higher, having shed 1.35% on Monday

European assets found some footing on Tuesday, a day after the announcement of a snap election in France had driven them down, while investor attention began to turn to U.S. inflation data and a Federal Reserve meeting on Wednesday.

Europe's STOXX 600 index was flat with France's CAC40 0.3% higher, having shed 1.35% on Monday.

The euro was steady at $1.0767 after dropping 0.33% the day before, but French government bonds remained under pressure, and its 10-year yield added 2 basis points to 3.26% having climbed 8 basis points on Monday.

With Germany's 10-year yield steady at 2.67%, the spread between the two, a gauge of the premium investors require to hold French debt rather than the euro zone benchmark, widened to 58.6 bps, its most since January.

The far-right National Rally was forecast on Monday to win a snap election in France but fall short of an absolute majority in the first opinion poll published after President Emmanuel Macron's shock decision to dissolve parliament.

Snap elections in France was a surprise and raises concern over the reform process when the deficit picture in France is already weak, Mohit Kumar, chief Europe economist at Jefferies, said in a note.

He added: However, we do not think that political uncertainty opens the door for instability in the Euro area or a break-up of the Euro area. Hence, we would not translate a short France view into a short Italy or Spain view.

In the UK, investors were digesting data showing the country’s labour market showed more signs of cooling in April as the unemployment rate rose.

While this is unwelcome news for Prime Minister Rishi Sunak ahead of a July 4 election, it could enable the BoE to reduce interest rates in August. Next week's inflation data will offer a better guide however.

Investors in British mid caps welcomed the news with the sector share index 0.3% higher. The pound was a fraction lower against the dollar at $1.2723, though the 10 year gilt yield dropped 2 bps to 4.30%.


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