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Stocks get lift from Fed easing expectations

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France political upheaval in focus, markets unrattled

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Investors weigh 50bp cut, look to U.S. CPI, PPI releases

for

clues

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Political turmoil in many countries complicates outlook

for FX

bond markets

By Rae Wee and Lucy Raitano

SINGAPORE/LONDON, Sept 9 (Reuters) - European stocks

stayed in positive territory on Tuesday, with rising

expectations of a rate cut from the U.S. Federal Reserve

offsetting political uncertainty in France following the

government's collapse.

Europe's STOXX 600 index was up 0.1% while Asian

shares added 0.9%. French blue chips

were up 0.1%, while the country's government bonds were steady.

S&P futures ticked 0.1% higher and Nasdaq futures

rose 0.2%, which would see the tech-focused index

surpass a record high scaled in the previous session.

French President Emmanuel Macron is seeking his fifth prime

minister in less than two years after opposition parties united

to kick out centre-right Prime Minister Francois Bayrou over his

unpopular plans for budget tightening.

Bayrou, handed a 364-194 defeat in a parliamentary

confidence vote on Monday, will officially offer his resignation

to Macron on Tuesday.

The government's collapse was already largely priced in, and

Macron has so far ruled out calls for a snap parliamentary or

presidential election, which the far-right National Rally has

called for.

"If we were to avoid elections, clearly that would be more

of a market positive than the alternative, though it doesn't do

much to alter the rather perilous fiscal trajectory that France

remains on," said Michael Brown, senior research strategist at

Pepperstone.

"It does remove a little bit of risk in the short-term,

which is why markets are by and large shrugging all of that off

this morning."

French 10-year bonds came under modest pressure, pushing

yields up around 1.7 basis points to 3.489%, broadly in line

with the rest of the government debt market.

"The tail risk is having a new presidential election before

2027 and a prime minister whose policies are not well received

by financial markets," said Kevin Thozet, investment committee

member at Carmignac.

"Markets are saying the probability of this happening is

very low, so no reason to panic."

The euro hit a more than six-week high of $1.1756

and was last 0.1% lower on the day.

FED IN FOCUS

Breathing new life into the equities rally were expectations

that the Fed will cut rates when it meets next week, following

Friday's weak U.S. jobs report.

While consumer and producer price inflation data are due in

the week ahead, investors are betting that a 25-basis-point cut

this month is a done deal, with focus now on whether the Fed

could deliver a larger 50-bp move.

The U.S. Labor Department will also report a preliminary

revision estimate to the employment level for the 12 months

through March later in the day.

"They are likely to cut anywhere between half a million and

750,000 jobs off the payrolls count for the 12 months to March,

if you get a figure like that it's only going to spur that

dovish repricing a little bit further," said Pepperstone's

Brown.

Markets are now pricing in an over 11% chance the Fed could

lower rates by 50bp this month, compared to zero a week ago,

according to the CME FedWatch tool.

Elsewhere, Japan's Nikkei climbed past the key

44,000 mark for the first time, aided by a weaker yen and

following the resignation of the country's Prime Minister

Shigeru Ishiba, a fiscal hawk.

U.S. tariffs on Japanese goods including cars and auto parts

are set to be lowered by September 16, Japan's tariff negotiator

Ryosei Akazawa said in an X post on Tuesday.

POLITICAL TURMOIL

Renewed uncertainty over the political landscape across

various economies has rattled currency and bond markets in the

past few sessions.

Along with upheaval in France, investors are also mulling

Ishiba's resignation in Japan, a heavy election defeat for

Argentina President Javier Milei's ruling party in local

elections and the abrupt replacement of Indonesia's finance

minister.

Still, losses across currencies were capped by a broadly

weaker dollar, while most bond markets have since largely held

steady.

The yen was last 0.4% stronger at 146.90 per

dollar, clawing back its losses from the previous session.

The two-year U.S. Treasury yield, which typically

reflects near-term rate expectations, languished near a

five-month low at 3.513%.

The benchmark 10-year yield rose 3 bps but was

still near a five-month trough, last at 4.072%.

In commodities, oil prices gained on Tuesday after OPEC+

decided to increase production by less than what market

participants had anticipated.

Brent crude futures were up 1.1% at $66.23 per

barrel.

Spot gold earlier touched a fresh record high of

$3,659.1 an ounce, buoyed by expectations of imminent Fed cuts.