LIVE MARKETS-Don't forget about France

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DON'T FORGET ABOUT FRANCE

With markets (rightly) focusing on a big rise in Japanese bond yields and Trump's push to acquire Greenland, the ongoing French budget drama has taken a bit of a backseat.

But on Monday, France's PM Sebastien Lecornu said he would use special constitutional powers to pass a budget for 2026.

In invoking Article 49.3, Lecornu can circumvent a formal vote in the National Assembly, likely ending negotiations that have dragged on for months.

So what does this mean for French assets?

French bonds FR10YT=RR are not doing particularly well on Tuesday, but they are also not showing any signs of additional stress compared to other sovereign debt markets as a global bond sell-off that started in Asia has rippled through the U.S. and Europe.

And with a likely passage of the budget out of the way, the big issue is the stability of the French government, according to UBS.

"The main risk for markets is the possibility of the government collapsing, which would add a significant layer
of political uncertainty," UBS strategists say.

"Such an outcome would likely result in wider bond spreads and further euro weakness," they add.

But that looks unlikely, after Lecornu said he had won enough political backing to survive a likely non-confidence vote that is to follow, after Article 49.3 is invoked.

On equities, UBS says they like euro zone stocks overall, but favour segments that benefit from more supportive structural trends and the improving cyclical outlook, including banks, IT, industrials, utilities, real estate and Germany.

(Samuel Indyk)

EARLIER ON LIVE MARKETS:

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