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

Wee

France finds itself in the depths of a political crisis once

again as it cycles through five prime ministers in 21 months -

hardly good news for any investor looking to park money in

Paris.

Markets will likely face a second day of turmoil in Europe

on Tuesday after Prime Minister Sebastien Lecornu's shock

resignation. That came just hours after announcing his cabinet

line-up, making it the shortest-lived government in modern

French history.

French President Emmanuel Macron has tasked Lecornu to hold

last-ditch talks with other political parties to try to chart a

path out of the crisis, but regardless, the damage has already

been done.

French OAT futures were down slightly in the Asian

session after bonds tumbled on Monday, and focus will also be on

Paris' CAC 40 index when markets open later in the day.

Rating agencies have already issued fresh warnings about

France's sovereign credit score, while BCA Research has gone as

far to say French bonds are "uninvestable".

France has the largest budget deficit in the euro zone,

which is almost double the European Union's preferred limit of

3%.

The nation's long-term finances were already vulnerable, and

politics has become increasingly unstable since Macron's

re-election in 2022, given the lack of any party, or grouping

holding a parliamentary majority.

Over in Japan, the Nikkei notched yet another record

high on Tuesday while the yen stayed weak along with

Japanese government bonds (JGBs), as investors braced for a

revival in big spending and loose monetary policy under Sanae

Takaichi, who is set to become the country's next premier.

A vote in parliament to choose a replacement for outgoing

Shigeru Ishiba is expected on October 15, and Takaichi is

favoured as the ruling coalition has the largest number of

seats.

The slide in the yen caught the attention of authorities as

usual, and Japanese Finance Minister Katsunobu Kato said on

Tuesday that the government will be vigilant for volatile

movements on the currency market.

Meanwhile, a closely watched 30-year JGB auction on Tuesday,

which was seen as an early test of investor tolerance for what

is expected to be more expansionist spending and monetary

policies in Japan, drew decent demand.

That eased some worries that investors might baulk at buying

long-dated debt given the fiscal uncertainty, leaving JGBs

recovering some of their losses in the wake of the auction and

sending yields lower.

Key developments that could influence markets on Tuesday:

- French politics

- Fed's Bowman, Bostic, Miran and Kashkari speak

(Editing by Sam Holmes)