European stock markets ended sharply lower on Tuesday, with France leading losses amid rising political instability and renewed concerns over the U.S. Federal Reserve’s independence.
France’s main index (FCHI) dropped 1.7% while government bonds also weakened after the country’s three main opposition parties confirmed they would not support Prime Minister Francois Bayrou in a confidence vote set for September 8. The vote, tied to Bayrou’s proposed budget cuts, could potentially topple the minority government.
Political uncertainty has already brought down the previous French government led by Michel Barnier, which lost a no-confidence motion in December. Analysts now warn that French equities are set to underperform in the near term.
Banking stocks were hit particularly hard. BNP Paribas slumped 4.2%, while Societe Generale tumbled 6.8%, marking its worst session in more than four months. Their declines weighed heavily on the wider European banking sector, dragging down the pan-European STOXX 600, which posted its steepest single-day fall in nearly a month. All major European bourses closed in negative territory.
Global sentiment also soured after U.S. President Donald Trump announced the dismissal of Federal Reserve Governor Lisa Cook over alleged mortgage borrowing impropriety. The move fueled concerns about the Fed’s independence, especially after Trump recently replaced Governor Adriana Kugler. While the dismissal faces legal hurdles, markets fear that Trump’s influence over the Fed board could accelerate his push for lower interest rates.
Jamie Cox of Harris Financial Group said Trump has effectively seized the Fed’s forward guidance role, signaling to markets that rate cuts are on the horizon. This came just days after Fed Chair Jerome Powell struck a dovish tone, helping lift the STOXX 600 close to record highs last week.
Elsewhere, British American Tobacco slid 1.9% after announcing the sudden departure of its finance chief Soraya Benchikh. By contrast, Bunzl surged 5.1% after reaffirming its annual outlook and restarting a share buyback program, its best performance in a year. Danish energy group Orsted also rebounded 5.8%, recovering part of its 16% plunge on Monday after the U.S. halted its Revolution Wind project.
Investors now turn their attention to Nvidia’s quarterly results due Wednesday, which are expected to serve as a key test of the strength behind this year’s AI-driven rally.
