French assets remain under pressure as the market prepares for snap elections at the end of the month, with the prospect of a win by Marine Le Pen’s far-right National Rally party. The National Rally, along with other European right-wing nationalist parties, performed strongly at last weekend’s European parliamentary elections, although mainstream parties look set to keep their majority. The results prompted French President Emmanuel Macron to call snap elections, leading to uncertainties about the country’s near-term political and economic outlook. The weeklong meltdown in French assets led Finance Minister Bruno Le Maire to warn that France would be plunged into a debt crisis similar to the one sparked in the U.K. two years ago if the National Rally wins. France’s CAC-40 slid more than 2% on Friday to reach its lowest level since late January, with bank stocks falling by between 3% and 5%. The cost of insuring French bank bonds against default using credit default swaps rose. BNP Paribas’s five-year CDS rose to 49 basis points Friday morning, up from 46 basis points on Thursday, and up 10 basis points from a week ago. Societe Generale’s five-year CDS climbed to 58 basis points, up from 54 basis points on Thursday and 12 basis points higher than a week ago, S&P Global Market Intelligence data showed. The euro is trading 0.4% lower at $1.0696, while jitters ahead of the elections lifted one-month implied volatility in the euro against the dollar—a measure of options pricing that reflects the perceived risk of future moves—to its highest in nearly eight months, Refinitiv data show. The yield differential between the 10-year French government bond, or OAT, and eurozone benchmark German Bunds widened to multiyear highs of 77 basis points, according to Tradeweb, even as bond yields were falling across the board. The widening of the 10-year OAT-Bund spread signals increased risks around French bonds and their underperformance versus Bunds.

The Swiss stock market closed down for the second day in a row. The problems in Europe prompted investors to head for the defensive heavyweights Novartis (+0.8%), Roche (+0.7%) and Nestle (+0.2%), one trader pointed out. The SMI lost 0.4 per cent to 12,045 points. Among the 20 SMI stocks, there were 16 losers and four gainers. A total of 20.3 (previously: 18.81) million shares were traded. Banking stocks were therefore among the laggards in Europe: UBS fell by 1.1 per cent and Partners Group by 1.8 per cent. Concerns about a trade war with China again affected Richemont (-1.5 per cent) and Swatch (-1.8 per cent) in the luxury goods sector. Both companies are heavily involved in China. In the third tier, Molecular Partners shot up by 12.5 per cent after the biotechnology company announced positive study results. Emmi (+0.9%) is due to undergo management changes.

Europe
Investors dumped European stocks after political turmoil in France raised concerns about the European Union’s cohesion. The DAX lost 1.4 per cent to 18,002 points, while the Euro-Stoxx-50 fell 2.0 per cent to 4,839 points. Prices on the French stock exchange declined by 2.7 per cent. Prices in the banking sector tumbled by 1.2 per cent. In Paris, Societe Generale slipped 3.6 per cent and BNP 2.7 per cent - they would be particularly affected by a crisis on the French bond market. Market participants also attributed the significant decline in defence stocks in Europe to concerns about Marine Le Pen's victory in the French elections. Rheinmetall lost 5.3 per cent, Thales 6.7 per cent and Hensoldt 2.9 per cent. Car shares slumped by an average of 2.1 per cent. In addition to the overall increase in risk aversion on the financial markets, concerns about an escalation of the trade dispute with China also weighed on the sector. This would be particularly negative for German car manufacturers. VW slid 1.2 per cent, BMW 1.5 per cent and Continental 6.3 per cent. Tesco rose by 2.6 per cent following financial results. The British retailer presented an "encouraging" first quarter, with like-for-like sales in the UK in particular better than expected, commented analysts at Citi. It had risen by 4.6 per cent. The outlook was confirmed as expected. The analysts continue to see the share as a "buy" because it only has a 2025 P/E ratio of 11 and a dividend yield of 5 per cent.

United States
U.S. stocks held their ground Friday, capping a week of strong gains on a cautious note. The Nasdaq Composite rose 0.1% to a fresh high, bringing its weekly gain to 3.2%. The S&P 500 slipped from its record, but logged a weekly gain of 1.6%. The Dow Jones Industrial Average also declined, shedding 0.5% for the week. A steady trickle of recent economic data has continued to suggest the economy is cooling, but at a gradual pace and without any signs of serious deterioration. Inflation slowed in May, even while the U.S. economy added a surprisingly strong 272,000 jobs for the month. The Federal Reserve held interest rates steady at its policy meeting this week but most officials at the central bank expect to cut rates before the year ends. Though the Fed indicated it isn’t in a hurry to cut interest rates, investors stepped up their bets that the central bank will lower them. They have been buying U.S. government bonds and pushing their yields lower. Wall Street analysts expect S&P 500 companies’ second-quarter earnings to jump 9% from a year earlier, according to FactSet, which would mark the biggest increase since the first quarter of 2022. Companies are racing to spend to build out artificial-intelligence programs, boosting the profit outlook for semiconductor companies and utilities. For the year, the S&P 500 is up 14%. Among individual stocks Friday, Tesla fell 2.4% after shareholders voted to reinstate Elon Musk’s compensation package. Adobe rose 15%, its best day since 2020, after the design software maker reported earnings that topped expectations. Travel and leisure stocks were among the day’s biggest decliners. Carnival shares fell 7.1% after analysts at Bank of America said the industry’s pricing power softened in June. Caesars Entertainment dropped 4.9%, while United Airlines Holdings shed 4.6%. Gold futures rose 1.4% Friday to settle at $2331.40 per troy ounce. U.S. crude oil futures settled Friday at $78.45 per barrel, up 3.9% for the week.

Asia
Stocks in Asia and Australia mostly fell on Monday. The Nikkei 225 index declined by 2.1 per cent to 37,982 points. Market participants speak of uncertainty about the future course of the Japanese central bank. In Sydney (-0.1%), the upcoming interest rate decision by the Australian central bank on Tuesday is causing restraint. Generally, the expectation is that key interest rates will remain stable. The trend in Shanghai (-0.5%) and Hong Kong (+0.2%) is mixed. No impetus is coming from the Chinese central bank. In Seoul (-0.3%), Hyundai Motor climbed by over 4 per cent. The company has taken steps to have its shares also listed in India.

Bonds
U.S. government debt yields finished lower for a fourth straight session on Friday, touching the lowest levels in more than two months, after softer-than-expected U.S. inflation readings for May boosted expectations for a Federal Reserve interest-rate cut as soon as September. The 10-year Treasury note yield fell by 4 basis points to 4.212%. The 2-year Treasury note yield gave up one basis point to 4.700%.

Analysis
Baader lowers SFS Group to Add (Buy) - Target CHF 134 (120)
Target price Bystronic: Mirabaud Securities downgrades to CHF 500 (520) - Buy
Target price Lonza: Bernstein SG raises to CHF 666 (635) - Outperform
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