French markets in a relief rally

• After this week’s relief rally, the CAC 40 is nearly back to its February highs, having almost fully recovered prior losses.
   
• Government bond yields also fell this month, indicating declining political uncertainty.
   
• Volatility could return amid risks over budget discussions and uncertainty over the government’s future.
   

French Prime Minister (PM) Lecornu secured wins in two no-confidence motions in the National Assembly, triggering a rally in French stocks, and paving the way for additional discussions over a draft budget. Markets welcomed the news that the country, for the time being, has avoided snap elections and the political uncertainty has eased. 

The victory came following the PM’s pledge to suspend President Macron’s landmark pension reform by freezing the planned increase in the retirement age until the 2027 presidential election. While uncertainty over the government’s future, the management of public finances and credit rating revisions persist, the new PM is likely to aim to pass the 2026 budget before year-end. On a positive note, the country’s economic growth is expected to improve modestly as it moves towards 2026, though policy uncertainty may weigh on household confidence. 

Bond yields declined over the week. Concerns related to loans given by some US regional banks, and worries over US-China trade war led the markets to seek the safety of government bonds. In commodities, gold prices rose, whereas oil continued its decline amid rising stockpiles in the US and fears that the trade war could dampen demand.
 

Equity and bond markets (chart)

Source: Bloomberg. Markets are represented by the following indices: World Equities = MSCI AC World Index (USD) United States = S&P 500 (USD), Europe = Europe Stoxx 600 (EUR), Japan = TOPIX (YEN), Emerging Markets = MSCI Emerging (USD), Global Aggregate = Bloomberg Global Aggregate USD Euro Aggregate = Bloomberg Euro Aggregate (EUR), Emerging = JPM EMBI Global Diversified (USD).

All indices are calculated on spot prices and are gross of fees and taxation.

Government bond yields (table), Commodities, FX and short-term rates.

Source: Bloomberg, data as of 17 October 2025. The chart shows the CAC 40 equity index.

¹Diversification does not guarantee a profit or protect against a loss.

Americas

US small business optimism fell

The NFIB small business optimism survey showed a decline in September, the first decrease in three months. Only two of the ten sub-indices rose, while the others were unchanged or fell. The overall drop was driven by weak expectations for business conditions over the next six months and a record rise in concerns about excess inventories. In addition, we saw indications that companies may consider hiking their prices to protect margins (partly tariff-related).

Europe

Germany’s ZEW survey expectations rose

Expectations for the future economic situation rose in October, helped by lower uncertainty and expected fiscal support from the government. However, assessment of current economic conditions weakened likely impacted by higher US tariffs. Additionally, other data align with the current condition assessment, given that manufacturing activity has also softened in the quarter. 
 
Asia

India: the first month under 50% US tariffs

India’s merchandise trade deficit (excess if imports over exports) widened to $32.2bn in September. Imports rebounded 16.7%, while exports rose 6.7%. September was the first month the steep US tariffs took effect. Exports to the US fell sharply, hitting labour‑intensive sectors (textiles, leather, gems), even as electronics and shipments to destinations like China, the UK and the Middle East showed strength.