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Morning bid Europe-Deepening darkness in Paris

Rae Wee gives us a look at what the European and global markets will be like tomorrow.

France is once again in a deep political crisis, with five different prime ministers having been in office in just 21 months. This is not good news for investors looking to invest in Paris.

The markets will probably face another day of turmoil on Tuesday following the shock resignation of Prime Minister Sebastien lecornu. This came only hours after Lecornu announced his cabinet, making this the shortest-lived French government in modern history.

Lecornu has been asked by French President Emmanuel Macron to have last-ditch discussions with other political parties in order to find a way out of this crisis. However, the damage is already done.

The French OAT futures fell slightly during the Asian session, after bonds plunged on Monday. Attention will be focused on the Paris CAC 40 when the markets open in the afternoon.

BCA Research, a research firm, has said that French bonds are uninvestable. Rating agencies have issued new warnings regarding France's sovereign debt score.

France has the highest budget deficit within the Eurozone, almost twice the European Union preferred limit of 3%.

Since Macron's reelection in 2020, the nation's finances have been vulnerable and political instability has increased, due to the lack of a majority party or group in parliament.

The Nikkei soared to yet another record on Tuesday in Japan. Meanwhile, the yen and Japanese government bonds (JGBs) remained weak. Investors were bracing for an increase in spending, as well as a looser monetary policy, under Sanae Taichi, who will be the next premier of the country.

Takaichi has been favored by the majority of the ruling coalition, which holds the most seats in the parliament.

As usual, the slide in the Japanese yen attracted the attention of the authorities. Japanese Finance Minister Katsunobu Kato stated on Tuesday that his government would be on guard for volatile currency movements.

The auction of 30-year JGBs on Tuesday was closely watched and seen as a test to see if investors were ready for the expected expansion in Japan's spending and monetary policy.

This eased concerns that investors would be reluctant to buy long-dated bonds due to the uncertainty of fiscal policy. JGBs recovered some of their losses after the auction, and yields fell.

The following are key developments that may influence the markets on Tuesday.

French Politics

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(source: Reuters)