Insights 
VT 
The French services PMI climbed to 49.7 in July 2025, slightly above expectations of 49.6 and previous readings of 49.6. Manufacturing PMI was at 48.4, slightly below the expected 48.5 but higher than its prior 48.1. The composite PMI rose to 49.6 from 49.2, surpassing the anticipated 49.3.
Despite these gains, France remains below the 50.0 mark, suggesting ongoing economic challenges. New orders decreased sharply, and business confidence hit its lowest since November last year. According to reports, if GDP growth remains below 1% this year, the country could face economic and political pressures. Global trade tensions further challenge France as a business hub, though a US-Japan deal might bring an EU–US agreement closer.
Concerns In Service And Manufacturing Sectors
In the service sector, business activity stagnated, with future expectations declining due to a proposed austerity budget that could lower household disposable income. The manufacturing sector saw a slight increase in the headline index, but significant declines in order intakes and business expectations raise concerns. Price increases in July could help firms regain margins lost recently. Without a budget agreement, political uncertainty may worsen, impacting both domestic and international business environments.
We see the latest figures as a signal to remain cautious, as the French economy is still contracting despite minor improvements. The sharp drop in business confidence is the most alarming detail, suggesting a bearish outlook for French equities in the near term. We believe purchasing put options on the CAC 40 index is a prudent strategy to protect against the downside risk highlighted in the report.
The political tension surrounding the prime minister’s austerity proposals is a significant catalyst for market movement, particularly in debt markets. We are monitoring the spread between French and German 10-year government bonds, which spiked to over 75 basis points in June amid political turmoil, a level not seen since 2017. Any further escalation in the budget debate could cause this spread to widen again, presenting a trading opportunity.
Expected Market Volatility And Trading Strategy
The considerable uncertainty mentioned in the analysis leads us to anticipate higher market volatility. Recent political events in France have already caused the VSTOXX, Europe’s main volatility gauge, to surge by over 30% in a single week this past June. We view buying call options on such volatility indices as an effective way to position for the expected price swings.
The marked decrease in new orders across both services and manufacturing points to specific sector weakness. We are wary of domestic consumer-focused companies, which could be hurt by potential austerity measures, and industrial firms that are sensitive to falling business expectations. This reinforces our strategy of using broad index derivatives to navigate the challenging economic landscape.
