European shares tumble as French political risks, Fed independence concerns weigh

By Medha Singh, Sukriti Gupta and Purvi Agarwal

(Reuters) -European shares closed lower on Tuesday, led by losses in France where the minority government looked increasingly likely to be ousted next month, while deepening concerns over the U.S. Federal Reserve's independence dampened global risk sentiment.

France's main stock index <.FCHI> fell 1.7% and its bonds stumbled as the three main opposition parties said they would not back a confidence vote which Prime Minister Francois Bayrou announced for September 8 over his plans for sweeping budget cuts. 

The previous government under Prime Minister Michel Barnier fell to a no-confidence vote in December, underscoring persistent political instability in the euro zone’s second-largest economy.

"Whether the knock-on effect on other European markets, which we saw earlier today, will continue is debatable," said Axel Rudolph, senior technical analyst at IG Group, adding French equities were likely to underperform in the short term.

French banks BNP Paribas and Societe Generale slumped 4.2% and 6.8%, respectively, with the latter recording its worst day in over four months.

They weighed on the broader banks sector, the heaviest drags on the pan-European STOXX 600, that logged its steepest single-day decline in nearly a month. All major regional bourses also closed in the red. 

Further dampening the mood, U.S. President Donald Trump on Monday moved to fire Federal Reserve Governor Lisa Cook over claims of mortgage borrowing impropriety, renewing concerns over the U.S. central bank's independence.

Trump's action is likely to run into legal hurdles, but if it passes, he could nominate a new member to the Fed board after the replacement of Governor Adriana Kugler earlier this month, amid repeated calls for lower interest rates.

Jamie Cox, managing partner for Harris Financial Group, said Trump is remaking the Fed board in unconventional ways and has usurped the Fed's forward guidance function for the time being, telling markets that lower rates are coming.

A dovish tilt from U.S. central bank Chair Jerome Powell had brought the European STOXX 600 within striking distance of an all-time high on Friday.

Among other stocks, British American Tobacco fell 1.9% after it said its finance chief Soraya Benchikh is stepping down with immediate effect, after about 15 months in the role.

Bunzl <BNZL.L> rose 5.1%, its best day in a year, after the British business supplies distributor maintained its annual guidance and resumed a share buyback programme.

Orsted <ORSTED.CO> rose 5.8% following a 16% plunge in the prior session after the U.S. halted the Danish company's Revolution Wind project off Rhode Island.

Markets are bracing for Nvidia's quarterly results on Wednesday, seen as a key gauge of the strength of the red-hot AI rally this year.

(Reporting by Medha Singh, Sukriti Gupta, and Purvi Agarwal in Bengaluru; Editing by Mrigank Dhaniwala and Chris Reese)