France

MUFG's Lee Hardman says the euro has weakened at the start of the week as intensifying fears over destabilizing financial conditions in the euro-zone, triggered by a sharp sell-off in French government bonds, drive a broad-based softening of the single currency. The euro fell to fresh year-to-date lows overnight against the US dollar and yen at 1.1161 and 176.41 respectively. The yield spread over German Bunds has blown out to just over 140bps, almost 60bps wider than before the summer, adding to a sense of crisis in the French government bond market. The unfavourable developments have triggered fears over the re-emergence of fragmentation risks in the euro-zone that could impede the transmission of monetary policy, and market participants are watching closely for further signs of contagion after Italian government bonds were also negatively impacted at the end of last week, even at the short-end of the curve. With no easy way out in the near term, MUFG says the euro can weaken further and recommended a short EUR/JPY trade idea in its latest FX Weekly report on top of its existing long USD/SEK trade idea.

The Euro came under intense selling pressure against its major currency peers as increased French fiscal concerns and political instability drove a sharp widening in the yield gap between French and German government bonds. France's Finance Minister Roland Lescure has vowed to cut the budget deficit from a target of 5% of economic output next year to the European Union limit of 3% by 2029, but analysts at BBH said they doubt the proposal will clear parliament without significant concessions, given the minority government. Ten-year French bond yields rose 0.65% to near 4.89% at press time after posting a fresh multi-decade high near 5% on Friday, and have gained over 28% in the last two months, while 10-year German Bund yields fell 1.26% to near 3.41% and have risen over 10% over the same period. The weaker Euro could boost the competitiveness of exports but raises the cost of imported goods, complicating the European Central Bank's fight against energy-driven inflation, and investors will focus later in the day on a speech by ECB Chief Economist Philip Lane scheduled for 08:00 GMT. Heightened French risk concerns have also improved the safe-haven appeal of the Swiss Franc, with investors watching Swiss Unemployment Rate data for September due on Tuesday.

Commerzbank analyst Thu Lan Nguyen says growing concerns over the sustainability of France's public debt have begun to weigh on the euro, which had previously remained largely unaffected by turmoil in bond markets. From an FX perspective, she argues the problematic aspect is the European Central Bank's central role in the mechanism, warning that in a worst-case scenario the ECB could face a dilemma between its mandate to preserve price stability and its responsibility to safeguard financial stability. The common currency's slide suggests markets see a rising probability that the ECB may have to intervene after all, and growing doubts that tools designed for such a scenario would be sufficient to contain the problem, with markets increasingly concerned the ECB could be forced into a more persistently accommodative monetary policy stance to ease pressure on long-term bond yields. Nguyen notes that as long as investors have access to a euro-denominated safe asset, the French government's problems remain a problem for OATs rather than for the euro itself, and that early signs of contagion spilling over to Germany would constitute a clear warning signal for the euro.

Japanese investors hold French bonds at a far higher share than the market benchmark. Bloomberg estimates that as of July, Japanese investors held about 23 trillion yen in French bonds, or roughly $145 billion, equal to 6.6% of Japan's total holdings of foreign debt securities, making it the most overweight eurozone investment relative to the Bloomberg Global Aggregate Index. The risk comes as the French bond market faces heavy pressure after the government failed to meet its budget deficit targets, compounded by policy gridlock and uncertainty ahead of next year's presidential election. The yield on 10-year French government bonds has now risen to about 5%, the highest since 2002, while French government bonds have returned minus 4.9% since the start of the year, making it the fourth-worst performing bond market in the world, and Japanese investors' holdings of French bonds have already fallen 2.5% from the end of last year. Hideo Shimomura of Fivestar Asset Management warned that the current selling of French bonds may only be the beginning, and that if the European Central Bank takes no action, the yield on 10-year French government bonds could rise to 7%. Meanwhile, the global bond funds at Sumitomo Mitsui DS Asset Management have already sold all of their French bond holdings over concerns about the country's fiscal position.

Ratings agency Moody's Ratings said on the 2nd that with a presidential election approaching, the prospects for passing France's 2027 budget are highly uncertain. It expects political fragmentation to persist after the election and sees fiscal consolidation remaining difficult. Moody's is due to review France's Aa3 rating on the 23rd, and the current outlook is negative, indicating that any future rating change is more likely to be a downgrade than an upgrade. On the 1st, the French government submitted to parliament a 2027 budget draft with a strong austerity bent aimed at reducing the fiscal deficit. Moody's noted that whether France's institutions can tackle major policy challenges despite parliamentary fragmentation will be the biggest factor in judging whether the negative outlook can be resolved.

Airbus delivered 72 aircraft in September, a figure nearly matching the 73 delivered in the same month a year earlier, according to industry sources. If confirmed, that would exceed the mid-to-high 60s analysts had expected and top Jefferies' estimate of 68. The unexpected recovery comes amid concerns over recent manufacturing defects involving A321neo parts and system-wide delays caused by shortages of components such as engines. Meeting the year-end target of about 870 aircraft will require record deliveries in the fourth quarter, and Lars Wagner, CEO of the commercial aircraft division, said this week he is "very confident." Meanwhile, Airbus disclosed that it has advised airlines to check A330 aircraft for foreign objects after tools were found in the horizontal tail of planes earlier this year, which has delayed deliveries. The recommendation covers aircraft delivered between January 2021 and July this year, amounting to 160 planes, including 15 MRTT military aerial refueling and transport aircraft, according to Cirium data.

Marion Le Mordec, Chief Investment Officer of the bond division at Fidelity International, said on the 2nd that hedge funds, which are gaining prominence in the European government bond market, are a major factor behind the recent selling of French government bonds. "In the current French market, the presence of hedge funds has become very large. Looking at fund flows, perhaps 50% of the current spread movement is due to hedge fund activity," she said. French government bond prices have plunged and yields have risen, as concerns over France's fiscal situation intensify alongside a global bond selloff, prompting investors to move funds into safer European government bonds. According to LSEG data, the spread of the French 10-year yield over Germany widened to 150 basis points on the 2nd, expanding by about 50bp over the past week, and is set to mark the largest weekly increase since November 2011. Hedge funds have become major players in the European government bond market as traditional investors such as pension funds reduce their holdings, with some estimates putting them at about half of trading activity. Le Mordec said, "I am not worried that the situation in France will descend into a crisis. But the market is trying to gauge the political situation and is warning politicians that they need to be careful in managing fiscal affairs." Regarding the possibility that the European Central Bank could support the French government bond market through its emergency TPI measure, she said, "If the ECB judges that there is a threat to financial stability, it will use whatever tools are available." However, the prevailing market view is that the likelihood of TPI being activated at this point is low, since France does not meet several of the key fiscal and deficit criteria required as conditions for support.

Schneider Electric is nearing an agreement to acquire U.S. engineering software company PTC for more than $20 billion, Bloomberg News reported, citing a person familiar with the discussions. A transaction could be announced as early as Monday morning, the person said, and the potential deal was reported earlier Sunday by the Financial Times. Neither Schneider Electric nor PTC has commented on the potential deal, which if completed would be the largest acquisition in Schneider Electric's history, according to data compiled by Bloomberg. PTC develops software used by manufacturers for product design, product lifecycle management and connected industrial operations, and adding those capabilities could deepen Schneider's push toward integrating software with the equipment and automation systems used by industrial customers. The potential acquisition would follow another recent Schneider deal: the company last month agreed to acquire smart-device maker Shelly Group for €1.2 billion, or about $1.35 billion.

ING's Chris Turner argues that the French debt sell-off has broken the narrative of ever-higher short-term rates and raised doubts about further European Central Bank tightening. The French risk premium is weighing on the Euro, according to Turner. The sell-off has cast doubt on the prospect of additional ECB rate hikes.

Bitcoin climbed into the $85,000 range on safe-haven buying driven by the French government debt crisis. The spread between French and German 10-year government bonds widened sharply from 1.12% to 1.4% over three days starting September 29, when France announced its largest-ever bond issuance for 2027, reaching levels not seen since the Greek crisis of 2012. As a result, safe-haven buying flowed into U.S. Treasuries, and that momentum carried over into bitcoin. The U.S. 10-year yield fell sharply from 5.34% to 5.21%. In the market, expectations for an October rate hike have dropped from 70% to 30% following comments from New York Fed President Williams and the core PCE deflator, and depending on today's employment report, bitcoin could clearly break above the upper end of its range.

France's state-owned supercomputer giant Bull restarted its plant in Angers, western France, on the first of the month after completing an equipment upgrade. The facility has doubled its production capacity from six racks a month to twelve, responding to European demand for stronger computing infrastructure for artificial intelligence. The expansion involved an investment of 80 million euros, and the company says capacity can be raised to 24 racks a month by 2027 depending on demand. The European Union plans to invest 7 billion euros between 2021 and 2027 in building out a supercomputer network, and according to Bull, the Angers plant is the only factory in Europe dedicated to manufacturing supercomputers. Chief Executive Emmanuel Le Roux said the company booked a record number of orders this year, winning 15 of the 18 tenders held by EuroHPC, which is jointly funded by the EU and its member states.

Investors are rushing to sell French bonds, equities and the euro amid concerns that the country's public debt is climbing toward 120% of gross domestic product, nearly double that of Germany, according to a Bloomberg report. The yield on 10-year French government bonds has jumped by more than 1 percentage point since June and stands at about 4.9%, close to its highest level since 2002, while the spread over equally dated German bonds has more than doubled since May to 141 basis points. The French government unveiled a draft budget on Thursday, October 1, proposing deep spending cuts to bring the deficit back to its original target of 5% this year, but the plan must pass through a highly divided parliament. Andrzej Szczepaniak, senior Europe economist at Nomura International, expects the French bond yield spread could widen to 200 basis points by the end of 2027. French Finance Minister Roland Lescure insists the government can still manage the situation.

Stellantis temporarily halted production at four French plants in October due to a shortage of EV batteries. The affected sites, which include Sochaux, Rennes, Mulhouse and Poissy, assemble electric models for the European market and the stoppages disrupted planned output schedules. Union representatives in France have raised concerns about the impact on shift patterns and worker income security. The company has indicated a 5 to 15 day window for the stoppages, and the key marker to watch is how long the halts actually last versus that window. Any update from Stellantis that quantifies lost EV volumes from these French sites will give investors a clearer read on potential revenue impact for the affected period.

Societe Generale strategist Kit Juckes warns that a proposed US diesel export ban would likely push up European diesel prices and weigh on the Euro and other European currencies. Juckes points to rising bond yields and oil prices as additional headwinds for the single currency. He also questions whether consensus Eurozone growth forecasts will be revised lower if these pressures persist.

XPENG will make the global launch of its Next-Gen AI Flagship SUV, the G9L, at the 2026 Paris Motor Show, opening European order books and revealing European pricing at the event running October 12 to 18. The G9L will become the fourth XPENG model produced in Europe, following the company's expansion of local manufacturing. XPENG and Tesla will be the only two automakers participating in the show's official Autonomous Lab, where XPENG will offer its first large-scale NGP test ride experience outside China using the recently launched L03 SUV coupe. XPENG will present one of the largest stands among Chinese automakers, spanning more than 1,000 square meters in Hall 6, showcasing its Physical AI ecosystem including the G9L, L03, P7+, G6, G9 and X9 alongside humanoid robots and flying cars. The company has delivered more than 100,000 vehicles overseas, including over 60,000 in Europe and more than 6,000 in France since entering that market two years ago; in the second quarter, overseas deliveries surpassed 20,000 units for the first time, up 81% year-on-year, while its robotics business completed a first funding round of over US$900 million in August.