The FTSE 100 (^FTSE) and European stocks dropped on Monday as France’s new prime minister Sebastien Lecornu resigned. Lecornu took office less than a month ago, and unveiled key members of his new government just yesterday.

His shock departure comes after president Emmanuel Macron named a broadly unchanged cabinet on Sunday, which had been criticised for not breaking from the past.

Lecornu had been expected to give a speech on Tuesday outlining his policy programme amid fraught discussions about the French budget.

The yield, or interest rate, on French 10-year bonds has jumped by 7 basis points (0.07 percentage points) to 3.58% on the back of the news.

Meanwhile, the euro slumped against the dollar, dropping by three-quarters of a cent against the US dollar to $1.166. French bank stocks also fell sharply.

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Danske Bank analyst Kirstine Kundby-Nielsen, said: “It’s concerning that the new cabinet only lasted 12 hours. There seems to be no willingness in parliament for a budget to be passed, so I think yields higher, pressure on euro-dollar in the near term.”

Meanwhile the Nikkei (^N225) surged 4.8% overnight in Japan, to a new record, as traders digested another political surprise. Sanae Takaichi was elected leader of the ruling Liberal Democratic Party (LDP), positioning her to become Japan’s first female prime minister after a parliamentary vote expected on 15 October.

Her victory defied expectations, as Polymarket gave her odds as low as 8.5% last week, rising to just 15% by Friday’s close. It has prompted a swift reassessment of Japan’s monetary trajectory.

Deutsche Bank’s Japan economist Ken Koyama said she “champions aggressive fiscal stimulus”, a stance he describes as supporting a “high-pressure economy”.

He added: “This comes at a time when Japan is grappling with chronic labour shortages, elevated inflation, and a persistently weak yen – raising questions about the sustainability of such policies. Bloomberg had an interesting column over the weekend wondering whether she would be the new Thatcher or the new Truss?”

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One immediate consequence is a likely delay in Bank of Japan rate hikes. Koyama expects the next increase to come in January, followed by further moves in July and January 2027, ultimately bringing the policy rate to 1.25%.

The yen weakened 1.85% against the dollar on the back of the news to stands at 150.25, while two-year yields are 3.5bps lower.

London’s benchmark index (^FTSE) was 0.1% lower in afternoon trade.

Germany’s DAX (^GDAXI) was treading water while the CAC (^FCHI) in Paris headed 1.5% into the red following reports of Lecornu’s departure.

The pan-European STOXX 600 (^STOXX) was down 0.1%.

The Nasdaq Composite (^IXIC) led the way higher, rising 0.3% amid an over-25% surge from AMD, while the S&P 500 (^GSPC) ticked up 0.2%. But the Dow Jones Industrial Average (^DJI) lost hold of opening gains, falling 0.2%.

The pound was 0.3% down against the US dollar (GBPUSD=X) at 1.3442.

Key companies reporting this week include TSMC, Shell, Levi Strauss, Imperial Brands and Hays.