Shortly before 10:30 a.m., the CAC 40 index was down approximately 0.8% at around 8,149 points, a trend consistent with the broader European market. The Euro Stoxx 50 shed 0.9%, while the DAX 40 dropped nearly 1% in Frankfurt and the FTSE 100 retreated by only 0.3% in London.

'Tensions in the Middle East are rising with new strikes between Iran and Israel, despite what should be the 61st day of a truce or ceasefire,' noted Deutsche Bank, which nevertheless highlighted the White House's call for de-escalation.

'These events have further complicated the chances of an imminent agreement. The main sticking points remain the release of Iran's frozen assets, its stockpile of highly enriched uranium, developments in Lebanon, and how control of the Strait of Hormuz will be managed in the future,' the German bank continued.

Unsurprisingly, this escalation in tensions is impacting oil prices, with WTI crude rising 2% to around 94.5 USD and Brent crude gaining 2.2% to 97.4 USD. This has been accompanied by a return of risk aversion, leading to a decline in equities.

Many commentators are also pointing to a logical consolidation phase, suggesting that the bull run driven by the AI craze was long overdue for a significant correction, after the S&P 500 surged more than 20% in just two months.

'The current correction is therefore rather healthy and should allow the bull market to regain momentum once it is over,' Christopher Dembik, investment strategy advisor at Pictet AM, noted this morning.

Eyes on U.S. inflation this week...

Investor caution this morning appears all the more justified at the start of a week packed with major events, notably the U.S. Consumer Price Index (CPI) figures due Wednesday and the ECB's announcements expected on Thursday.

According to consensus estimates, the U.S. CPI is expected to have accelerated to 4.2% in May, its highest level since April 2023, which could support a tightening of the Fed's monetary policy in the coming months.

According to the CME FedWatch Tool, interest rate futures are now pricing in an approximately 72% probability that the Fed will raise its key rate by 25 to 75 basis points by the end of the year. The probability of a status quo stands at 27%.

...followed by the ECB meeting

Attention will also turn this week to the ECB, which is set to convene its Governing Council. 'The ECB will not be able to avoid a rate hike at its June 11 meeting, much as it might wish otherwise,' said Raphaël Dupuy-Salle, Fixed Income Manager - Listed Assets at Sienna IM.

'While inflation figures were under control at the end of February (1.9%), they surged following the outbreak of the conflict in the Middle East to reach 3.2% at the end of May,' the market professional pointed out.

'Given the latest developments in the conflict, we consider three rate hikes during the year to be likely, with our lower bound set at two 0.25% hikes and the upper bound at four hikes,' he predicted.

Orange and M6 in focus in Paris, Intesa Sanpaolo shunned in Milan

Pending these major events, corporate news this morning is dominated by the signing of a memorandum of understanding between Orange, Bouygues Telecom, and Free-Iliad Group with Altice France for the acquisition of SFR, France's second-largest telecommunications operator.

'This acquisition would strengthen Orange's leadership position in the French market, accelerate value creation for all group stakeholders, and support its capacity to invest in digital infrastructure and services,' explained Orange, whose shares (+1.8%) led the CAC 40.

On the SBF 120, M6 surged to the top, gaining 6.3% following an upgrade from Oddo BHF to 'outperform,' while the daily Le Parisien reported over the weekend that advanced talks were underway regarding a merger with TF1.

Elsewhere in Europe, Intesa Sanpaolo dropped 4% in Milan after Italy's largest bank launched a bid for Banca Monte dei Paschi di Siena with the support of insurer Unipol. On Sunday, Banco BPM had urged Banca Monte dei Paschi to discuss a merger of equals.