European Stocks Fall: Fed & France Shake Sentiment
European stocks and US futures traded lower as risk-off sentiment intensified due to the political crisis in France and US President Donald Trump's move to remove Fed Chair Lisa Cook. The Stoxx 600 fell 1%, while the CAC 40 plunged 2.1%. French 10-year bond yields rebounded slightly after falling on Monday, but the spread against Germany widened to 78 basis points, near its highest close since April, amid plans for a confidence vote that could bring down the government next month.
In the US, S&P 500 futures fell 0.2% on renewed concerns about the Fed's independence. Longer-dated Treasuries weakened, steepening the yield curve, with the 10-year yield rising 3 basis points to 4.30%. The US dollar briefly fell as much as 0.3% before paring its losses.
Risk appetite was further depressed after Trump renewed threats of new tariffs and export restrictions on advanced technology and semiconductors in retaliation for digital services taxes in several countries. According to Andrea Tueni (Saxo Banque France), negative sentiment was primarily driven by Trump's actions against Cook and the escalating trade war issue. For France, the next risk is if the 10-year OAT yield surpasses Italy's—a sign of a return of the risk premium on French assets.
Pressure in equities was also triggered by fading euphoria over the Fed's interest rate cut, with Wall Street bracing for a less-than-stellar inflation release this week. If Cook is indeed removed, Trump has the potential to secure a majority of four of the seven seats on the Fed's Board of Governors; Cook's term is due to end in 2038. Trump claims there are "sufficient grounds" for alleged false statements on one or more mortgage loans. It is unclear whether Cook will sue; if so, he could request an injunction to be reinstated while the legal process continues. The Fed declined to comment. (ayu)
Source: Newsmaker.id
