France is turning from one of the pillars in the eurozone economy into one of its weakest links, as political instability threatens to push the country's borrowing costs above even Italy's struggling finances. The crisis stems from France's deteriorating fiscal situation, with debt projected to rise from 113% of GDP last year to over 120% by the decade's end, while the budget deficit reached 5.8% of GDP in 2024, worse than Greece, Spain, and Italy. Bayrou's proposed solution involves cutting €44 billion from the deficit, including controversial measures like eliminating two national holidays, but lacks parliamentary support to survive. Finance Minister Eric Lombard has warned that France may need International Monetary Fund (IMF) intervention if the crisis deepens, as the country's borrowing costs are rising and could soon exceed Italy's within two weeks. The potential government collapse would mark the third major political upheaval under President Macron in less than a year, further undermining investor confidence and economic stability in Europe's second-largest economy.
EQUITY
Wall Street cheered at another record high ahead of Nvidia’s pivotal earnings report, with an $8 billion on the line from U.S.-China trade restrictions and a dominant 8% weighting in the S&P 500. While tech shares were mixed, enthusiasm for AI-related companies is still high, pushing the S&P 500 to a four-year high in price-to-earnings ratios. Elsewhere, database provider MongoDB gained on improved forecasts, and Cracker Barrel jumped after reversing a controversial logo change.
GOLD
Gold prices are supported higher by strong Asian demand despite a slight dip due to a stronger dollar. Political uncertainty in the U.S. limited dollar strength, particularly surrounding President Trump’s move to dismiss Fed Governor Lisa Cook, improving safe-haven demand for gold. Physical demand remained strong across major Indian cities, boosted by auspicious buying during Ganesh Chaturthi.
OIL
Crude oil prices recovered slightly after Tuesday's losses, supported by a draw in U.S. crude inventories, albeit lesser than last week. Goldman Sachs and the IEA forecast a significant oil surplus this year and next, with supply growth far outstripping demand, leading analysts to predict Brent crude could drop to the low $50s. However, short-term prices are supported by potential U.S. tariffs on India and a sequential recovery in Chinese demand, even as hedge funds slash bullish positions to 16-year lows.
CURRENCY
The U.S. dollar fell over President Donald Trump’s push to install loyalists at the Fed, including the controversial attempt to remove Governor Lisa Cook, with the DXY index failing to go higher than 99, slipping against major currencies like the yen, Swiss franc, and euro. Meanwhile, offshore yuan remained stable, supported by a strong official PBOC fixing, though there was trouble brewing in its equity markets.
