French Stocks Lead Declines in Europe as Political Risk Lingers

(Bloomberg) -- French stocks slumped for a third straight day, leading declines in the pan-European equity index, amid continued post-election political jockeying to form a government.

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The French CAC 40 Index fell 1.6% by the close and now stands about 1% away from entering correction territory, which is measured as a drop of 10% from a recent high. Political parties continued negotiations Tuesday in the aftermath of an election that’s left parliament divided, with some warning that talks for a coalition could last for a while.

Europe’s Stoxx 600 slipped 0.9%, with all but one sectors ending the day in the red, weighed down by uncertainty over France’s political outlook as well as the upcoming corporate earnings season.

Among individual stocks, Dassault Systemes SE slid as it cut its 2024 sales and profit targets, saying that a number of transactions were delayed by cautious customers. BP fell after warning it would take a hit of $1 billion to $2 billion from impairments in second-quarter results.

Indivior Plc sank as much as 44%, the most since April 2019, after the drugmaker cut its net revenue guidance for the full year.

The rally in European stocks has stalled since early June on the resurgence of political risk. With legislative elections now done in both the UK and France, attention is turning to the corporate earnings season, which kicks off on Friday with results from JPMorgan Chase & Co.

Marija Veitmane, senior multi-asset strategist at State Street Global Markets, said she wasn’t “too optimistic” about European earnings.

“Most European companies are seeing falling demand and reduced pricing power,” Veitmane said. “We expect to see margin contraction and weak future guidance.”

Meanwhile, in testimony to lawmakers, Federal Reserve Chair Jerome Powell said “more good data” would strengthen confidence that inflation was moving down toward the central bank’s 2% target, and recent readings point to “modest further progress” on prices.

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--With assistance from Michael Msika.

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