French Political Turmoil Sparks Eurozone Jitters as Markets React

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3730-1.3980

Euro                1.5920-1.6170

Sterling           1.8470-1.8720

WTI Oil (opening level) $63.17

Yesterday, French Prime Minister François Bayrou announced that a no-confidence vote will be held on September 8th. This comes in the wake of the ongoing political impasse. This will have broader spillover effects across the Euro zone, especially if it causes a new round of elections.

The announcement has triggered a market correction in French assets and the Euro has lost ground as this political instability is fast becoming an economic liability.

Headlines

• In local state elections in Iowa, a seat formerly held by a Republican went to the Democratic candidate, who won by 10 points. This ended the Republicans’ super-majority in the state legislature and is a sign of rising opposition to Republicans and Donald Trump, as the district was formerly solidly Republican.
• The Federal Reserve stated that its governors can only be removed "for cause," ensuring its independence. This follows Trump's attempt to oust Governor Lisa Cook over alleged mortgage document falsification. The Fed said it would abide by any court decision in Cook’s legal challenge of her dismissal by Trump and has deferred any decision. The case could eventually head to the Supreme Court.
• The Dallas Fed's business activity index rose 4.8 points to 6.8 in August 2025, its highest since January. The revenue index increased to 8.6, while the employment index fell slightly to 1.2, indicating stable labour conditions. Business sentiment improved, with the outlook index turning positive at 4.3 for the first time in six months.
• The S&P CoreLogic Case-Shiller 20-City Home Price Index increased 2.1% year-on-year in June 2025, down from 2.8% in May and matching expectations. This marks the slowest growth since July 2023 due to high mortgage rates and ample housing inventory reducing buyer competition. 

Key Points

• Equities: U.S. eked out gains led by Boeing and pharma; Europe fell on French political risk; Asia lower with Hong Kong down
• Volatility: Vol stays calm in mild contango; options price a 1% SPX move.
• Digital Assets: Ether rises while Bitcoin is flat; U.S. spot BTC and ETH ETFs see net inflows.
• Fixed Income: US yields push lower after strong 2-year treasury auction
• Currencies: USD firms in a low volatility environment
• Commodities: Trouble at the Fed supports gold. Oil markets focus on India and US stockpile report