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Weekend mass protests in France sent shockwaves through French equities and government bonds on Monday, dragging European stock markets lower and putting the euro under pressure.

The unrest, described as the country's most serious political turmoil in years, has added to uncertainty ahead of the 2027 presidential election and pushed French bond yields back up.

Major European indices fall

At 4 p.m. Turkish time, Germany's DAX index had fallen 1.36 percent to 25,274 points. France's CAC 40 was trading at 7,832 points, down 1.56 percent, while the euro slipped 0.12 percent against the dollar to $1.1230.

In the same minutes, Britain's FTSE 100 lost 1.29 percent to fall to 10,741.51 points. Italy, one of the countries most exposed to political risk, saw its FTSE MIB index drop 1.77 percent to 48,975.40 points.

Political uncertainty hits bonds and bank shares

Events that have deepened political uncertainty in France before the 2027 presidential election put heavy pressure on French government bonds, sending yields higher again.

The moves spread to the insurance sector, with shares in AXA SA, France's largest insurance group, losing close to 2 percent to trade at 42.20 euros. Leading French banks BNP Paribas, Societe Generale and Credit Agricole saw their shares fall between 2 and 2.5 percent.

Spain's IBEX 35 index also came under pressure, declining 1.8 percent to 18,978 points, with the political situation there adding to the general uncertainty as the country prepares for early elections next month.

Defense and bank stocks lead losses

Across Europe, defense sector and bank shares were among the biggest losers. Investors were also seen acting cautiously ahead of financial results due this week from software company SAP, British bank Barclays and network equipment supplier Nokia.

Analysts said there were clear political risks that would drive short-term market volatility, while adding that developments beyond the protests could matter more for medium and long-term moves.

Analysts see limits on the euro

Francesco Pesole, FX strategist at ING Group, said the widespread protests that continued in France over the weekend would keep weighing on local equities and could spill over into the bond market, limiting the euro/dollar pair's upside potential.

In an analysis, Pesole reported that the exchange rate dipped briefly below 1.1200 overnight before showing a modest recovery this morning. The euro is currently priced 1.3 to 1.5 percent low against the dollar, a move consistent with France's fiscal risks remaining firmly in the market and with the French-German 10-year bond yield spread hovering around 140 basis points, Pesole said.

Pesole noted that markets had shown a temporarily more relaxed view of the budget situation, but that the mass protests in France could restrict the euro/dollar pair's ability to return to last Friday's levels. Germany's ZEW Economic Sentiment Index, due to be released tomorrow, will also be in the market's focus, Pesole said.

Key takeaways

• France's CAC 40 fell 1.56 percent and Germany's DAX dropped 1.36 percent at 4 p.m. Turkish time.
• Italy's FTSE MIB was the worst performer among major indices, sliding 1.77 percent.
• French bank and insurance shares, including BNP Paribas, Societe Generale, Credit Agricole and AXA, lost ground.
• ING strategist Francesco Pesole said the protests could cap the euro's recovery and spread to the bond market.