Morning Bid: Deja vu as France back in crisis

A look at the day ahead in European and global markets from Ankur Banerjee

Markets have decided to nervously look away from the brewing Trump v Fed saga for now, putting the spotlight on the political crisis gripping France that has triggered a sharp selloff in stocks and bonds of the euro zone's second-biggest economy.

French Prime Minister Francois Bayrou's gamble to win backing for his deeply unpopular debt-reduction plan backfired on Tuesday, plunging the country deeper into political and financial instability.

FRENCH WORRIES

Investors will keep an eye on France's blue-chip CAC40 index, which is down more than 3% this week as well as the banking stocks that have borne the worst of the beating so far.

The bond market reaction will also be crucial after the gap between French and German 10-year yields, a gauge of the premium investors require to hold French debt, widened on Tuesday to around 79 basis points - its largest since April.

We have been here before as France lost its last prime minister, Michel Barnier, to a no-confidence vote over the budget in late 2024, after just three months in office following another snap election in July that year.

Stock futures and currencies have been fairly calm in Asian hours but with the economic calendar light, political and fiscal worries may take centre-stage.

Bond-market ruction is being felt across the globe again with the U.S. Treasuries curve steepening after President Donald Trump on Monday ordered the firing of Federal Reserve Governor Lisa Cook, an unprecedented move that could lead to a legal tussle. Cook intends to file a lawsuit to prevent her firing.

Markets appear to be nervous but have broadly shrugged off the attack on the Fed's independence, with the yield on the 30-year Treasury note not even threatening to breach 5% as would reasonably be expected.

Perhaps investors are being complacent or they are waiting for big institutional money to make a shift in moving away from the U.S. assets. As history tells us, it's OK until it's not. Just look at Turkey.

NVIDIA

Wednesday's main event no doubt will be the earnings report from Nvidia that will set the tone for near-term risk appetite and whether the sky-high valuation for AI darlings is justified.

Caught in the crossfire of Washington and Beijing's ongoing trade war, the fate of Nvidia's China business hangs on where the world's two largest economies land on tariff talks and chip trade curbs. That is where investor attention will be.

Overall, the $4.4 trillion AI chipmaker is set to report a 53% rise in second-quarter revenue to $46 billion, LSEG data showed, and yet it may not be enough to satiate investors as that jump is still a far cry from the triple-digit growth it witnessed for many recent quarters.

Therein lies the challenge for a stock that has risen 35% this year and sways the broader market on its every movement. Options traders are pricing in a swing of about $260 billion in the firm's market capitalisation after the result.

Key developments that could influence markets on Wednesday:

* Germany GfK Consumer Sentiment for September

(By Ankur Banerjee; Editing by Christopher Cushing)