European Stocks Retreat as French Political Turmoil Hits Markets

European equities slipped on Monday, with French shares leading losses after newly appointed Prime Minister Sébastien Lecornu abruptly resigned, triggering renewed political uncertainty across the euro zone.

By 09:46 GMT, the pan-European STOXX 600 index fell 0.2% to 569.4 points, retreating from an intraday record high reached earlier in the session. The benchmark had climbed more than 2.8% last week, supported by optimism over potential monetary easing from the Federal Reserve.

French Markets Under Pressure

France’s CAC 40 dropped 1.6%, marking its steepest one-day decline since August, after Lecornu resigned just hours after naming his new cabinet. The move reignited concerns over France’s political stability and its potential impact on fiscal and market policy.

The selloff hit financials hardest — French banks Societe Generale, Credit Agricole, and BNP Paribas fell between 4.3% and 6.3%, dragging the eurozone banking index down 1.6%.

Meanwhile, French government bond yields spiked, signaling investor nervousness, while mid-cap stocks lost 2.3%, snapping a six-day winning streak if losses hold.

Analysts noted that French blue-chip equities have underperformed peers this year, gaining just 7% versus double-digit rises in other developed markets, as political tension and fiscal risks continued to weigh on sentiment.

Sector Highlights

There were, however, bright spots across the broader market:

• Oil and gas stocks rose 1%, tracking higher crude prices after OPEC+’s planned November output increase came in smaller than expected.
• Avanza Bank jumped 4% after Kepler Cheuvreux upgraded the Swedish financial group to “hold” from “reduce.”
• J.P. Morgan upgraded its view on euro zone equities to “overweight” from “neutral”, citing improved valuations and policy support after months of relative underperformance.

Among corporate laggards, SEB plunged 20.3% after the French kitchenware manufacturer cut its full-year sales and profit forecast, while Mondi tumbled 15.2% following weak third-quarter profit growth due to sluggish demand and lower prices.

In the U.K., Aston Martin shares slumped 6% after the luxury automaker warned that its full-year loss would exceed market expectations.

Market Outlook

Investors are now watching for further political developments in France and macroeconomic data from the euro area later this week. Market participants remain cautious, with sentiment likely to hinge on how President Emmanuel Macron responds to Lecornu’s resignation and the potential for renewed calls for snap elections.

“French political uncertainty is back at the forefront of European risk,” said one London-based strategist. “While broader European markets remain supported by easing expectations from the Fed and ECB, France’s instability is a growing drag on confidence.”