The Paris Bourse is set to rebound on Monday morning from last week's plunge, triggered by concerns over the political situation in France.

At around 8.15am, the 'future' contract on the CAC 40 index - June delivery - recovered 24.5 points to 7524.5, pointing to a rebound at the opening.

The Paris market had fallen by more than 6% last week, a weekly decline unseen since the end of 2022, sending the CAC into negative territory since the start of the year (-0.5%).

The euphoria of the beginning of the year gave way to a sudden correction and an abrupt reawakening of volatility, which took many investors by surprise.

Market distrust of a possible RN or new Front Populaire coming to power was quickly felt on the government bond market.

The spread between the yield on French 10-year OATs and the German benchmark has widened to over 80 basis points.

The fact that the surge in volatility has not been confined to equities, as illustrated by the collapse of the euro on Friday, has prompted some observers to express concern about the ongoing stock market correction.

'There is a risk that the yield spread on French bonds, the fall in equities and potentially the fall in the euro will persist at least until July 7', warns Christopher Dembik, Investment Strategy Advisor at Pictet AM.

Our scenario is based more on increased volatility, with phases of fall followed by rebounds, rather than a continuous fall", he adds.

According to the analyst, everything will depend on the evolution of the polls.

"Let's not forget that the political risk is not only French: the coalition in power in Germany is facing major differences over the budget, and a new government has to be formed in Belgium", he reminds us.

The open question is how long this correction phase will last, and whether it marks the beginning of the end of the equity market rally.

On a positive note, the political upheavals in Europe did not prevent the S&P 500 and Nasdaq from racking up a seventh week of gains out of eight on Friday, and setting new record highs.

The latest statistics showed that inflation was under better control in the USA, reinforcing the scenario of a "soft landing" for the US economy this summer.

Economic indicators, particularly those relating to inflation, likely to influence the trajectory of central banks' monetary policies should therefore continue to have a major impact this week.

The Bank of England will announce its monetary policy decisions on Thursday, but persistent wage pressures in the country should lead it to leave rates unchanged.

The Swiss National Bank should also refrain from lowering rates, as the next monetary easing is not due until September.

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