European Stocks Fall on Banking Weakness as Political Risk Returns
London Stock Exchange

European stock markets fell on Monday as bank stocks hit the deck in a broad-based selloff. The principal driver behind price action for the session was a return of political risk, with investors focusing increasingly on French politics and the likely outcome of a key referendum on constitutional reform in Italy.

The DAX in Germany dropped 0.9% for the session while the CAC 40 in Paris was down by some 0.7%. The FTSE 100 in London was 0.6% lower by the close and the mid-market FTSE 250 was down by 0.6%.

The euro currency fell more than 100 points against the dollar during the session, to trade back at 1.0570. The pound also fell by a similar measure against the greenback after the Prime Minister's office reiterated the government's commitment to Britain's exit from the EU, in response to speculation that a deal could be crafted that avoids an all-out exit.

Bond markets were mixed during the session. French 10-year yields rose by 10 basis points to 0.77%., pushing them close to their 2016 high. The German 10-year yield was down 20 basis points to 0.19%. U.K. 10-year yields were also down by almost 10 basis points to 1.24%.

The December referendum in Italy is a concern, given that Prime Minister Matteo Renzi has said that he will step down in the event that he fails to secure enough support for his proposed reforms. Polls show the "No" campaign with a strong lead over Renzi's reformists, giving rise to the prospect of a snap election and a populist party ascending to power in one of Europe's largest economies.

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