European shares dropped on Tuesday, led by losses in France as the country’s minority government looked increasingly likely to be ousted next month, while mounting concerns over the U.S. Federal Reserve’s independence curbed appetite for riskier assets globally.
France’s main stock index fell 2.1% and its bonds stumbled as the three main opposition parties said they would not back a confidence vote which Prime Minister Francois Bayrou announced for September 8 over his plans for sweeping budget cuts.
The previous government under Prime Minister Michel Barnier also fell to a no-confidence vote in December, underscoring persistent political instability in the euro zone’s second-largest economy.
“The country needs the stricter budget measures in order to contain debt, and that is creating a lot of political problems in France. It’s a deja vu for the French politics,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“In the medium to long run, we think that the French political schisms will eventually ease, but they will not necessarily bring the necessary budget outlook and predictability to go back into France with full confidence.”
Shares of French banks BNP Paribas and Societe Generale slumped 6.2% and 5.2%, respectively, weighing the wider European index.
The pan-European STOXX 600 fell 0.8% by 0811 GMT with all major regional bourses in the red.
U.S. President Donald Trump on Monday took the unprecedented action of firing Federal Reserve Governor Lisa Cook, over claims of mortgage borrowing impropriety, sparking fresh concerns over the U.S. central bank’s independence that prompted a flight from U.S. assets.
Hours later Cook responded in a statement emailed to reporters through the law office of lawyer Abbe Lowell, saying of Trump that “no causes exists under the law, and he has no authority” to remove her from the job.
A dovish tilt from U.S. central bank Chair Jerome Powell had brought the European STOXX 600 within striking distance of an all-time high on Friday.
Among other stocks, British American Tobacco (BATS.L), opens new tab fell 1.9% after the maker of Dunhill cigarettes said that its finance chief Soraya Benchikh is stepping down with immediate effect, after about 15 months in the role.
Bunzl rose 5% after the British business supplies distributor posted a decline in half-year profit.
Orsted steadied 3.4% following a 16% plunge in the prior session after the U.S. halted the Danish company’s Revolution Wind project off Rhode Island.
Markets are bracing for Nvidia’s quarterly results on Wednesday, seen as a key gauge of the strength of the red-hot AI rally this year.
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