European stock markets ended lower on Friday, and Wall Street was also in the red at mid-session, with US indices consolidating after their recent record highs, while in Europe political risk prevailed with uncertainty linked to the legislative elections in France.

In Paris, the CAC 40 ended down 2.66% at 7,503.27 points. The British Footsie gave up 0.21% and the German Dax shed 1.34%.

The EuroStoxx 50 index was down 1.95% and the FTSEurofirst 300

by 0.91%. The Stoxx 600, weighed down by the banking

(-2.17%) and automotive sectors (-2.18%), ended down 0.97%.

At the time of closing in Europe, the Dow Jones was down 0.30%, the Standard & Poor's 500 0.27% and the Nasdaq 0.16%, the latter two indices having reached record closing highs on Thursday for the fourth consecutive session.

In the eurozone, the political crisis and financial turbulence in France, born of the rout of Emmanuel Macron's party in the European elections, held investors' attention as the left, united under the label the "New Popular Front", unveiled a program of "rupture", while on the far right Jordan Bardella targeted the "engineers of chaos", pretending to ignore the current presidential majority.

The prospect of a victory for the extreme parties on June 30 and July 7 led to an increase in the yield spread between French and German ten-year bonds, which rose to a seven-year high of over 82 basis points.

Asked whether the European Central Bank (ECB) could come to France's aid by using the institution's emergency bond-buying program to avert the risk of fragmentation within the eurozone, Christine Lagarde sidestepped the question.

Matthieu Bailly, Chairman and Chief Operating Officer of Octo AM, warns that "a major difference in European yield levels compared to past situations is likely to be the crossover of French yields with Portuguese and Spanish yields", and sees this crossover occurring perhaps as early as the end of June.

RATES

On the bond market, the yield on the ten-year German Bund

ended down 13.5 basis points (bps) at 2.36%, while its French equivalent remained virtually unchanged at 3.1407%. The spread between these two bonds climbed to over 82 bps, up almost ten points, with many rates strategists pointing to parallels with the sovereign debt crisis that hit Europe from 2009 onwards.

In the United States, the yield on ten-year US Treasury bonds

fell by 2.9 basis points to 4.217%, as several indicators during the week showed a slowdown in inflationary pressures despite the Fed's downward revision of its rate cut projections.

CURRENCIES

The euro is set to record its biggest weekly fall (-1.05%) against the dollar in two months, on fears that a new government will worsen France's budget situation. The European currency is trading at $1.0694 (-0.38%).

"At both ends of the French political spectrum, the parties campaigning are fiscally expansionist," noted Karl Schamotta, chief market strategist at Corpay.

The euro's weakness helped boost the dollar, whose index

index gained 0.31% against a basket of six international currencies, after touching its highest level since May 2.

The yen fell to its lowest level in over a month on Friday, to 158.25 against the dollar, as the Bank of Japan (BoJ) left its key rates unchanged and announced that it would present a detailed plan for reducing its balance sheet in July.

VALUES IN EUROPE

Atos jumped 14.58% after announcing that it had received a non-binding offer letter from the French government for the acquisition of its strategic activities.

British property developer Bellway was down 4.41% after Crest Nicholson (+13.72%) rejected a revised £650 million takeover offer.

H&M gained 2.42%, with UBS upgrading its rating on the Swedish ready-to-wear group from "neutral" to "buy".

INDICATORS OF THE DAY

US household sentiment has deteriorated since the beginning of June, with the confidence index at 65.6, according to the first results of the University of Michigan's monthly survey.

France's consumer price index, harmonized to European standards (HICP), rose by 2.6% year-on-year in May, following a "flash" estimate of 2.7%, according to data from Insee.

OIL

This year's crude oil demand forecasts from the International Energy Agency (IEA), the US Energy Information Agency (EIA) and the Organization of the Petroleum Exporting Countries (Opec) are driving the oil market, which is on course for its best weekly performance in four months.

Brent crude gained 0.1% to $82.67 a barrel, while West Texas Intermediate (WTI) gained 0.18% to $78.48 a barrel.

For the week as a whole, the two oil benchmarks could gain nearly 4%.

NEXT MONDAY: (Written by Claude Chendjou, edited by Bertrand Boucey)