French stocks started dropping in early trading following Sunday's election results, leaving France's National Assembly without a clear majority for any political group. The outcome has raised concerns about political stability and economic reforms in one of Europe's largest economies.

According to reporting by The Associated Press, the CAC-40 index of large French companies opened 0.4% lower at 7643.03 on Monday morning. The euro also weakened against the dollar, falling to $1.0819 from $1.0836.

While the markets' worst fears of a majority for the left-wing New Front National or the anti-immigrant National Rally were not realized, France now faces weeks of uncertainty. Prime Minister Gabriel Attal announced his resignation, signaling potential difficulties for any new government to pass legislation and make crucial spending decisions.

Holger Schmieding, chief economist at Berenberg Bank, expressed concern about the election results. "That the left has become the strongest group in parliament raises serious concerns," he told AP. "France is heading for a period of political uncertainty and – most likely – for fiscal problems and some reversal of President Emmanuel Macron's pro-growth reforms."

In contrast, US stocks reached new records on Friday, buoyed by a highly anticipated jobs report. The S&P 500 climbed 0.5% to 5,567.19, setting an all-time high for the third consecutive day. The Dow Jones Industrial Average rose 0.2% to 39,375.87, while the Nasdaq composite added 0.9% to 18,352.76.

The US jobs report revealed that employers hired more workers than economists expected in June but at a slower pace than in May. The unemployment rate unexpectedly increased, and wage growth slowed. These factors reinforced the belief on Wall Street that the US economy's growth is decelerating under the weight of high interest rates.

This slowdown is seen as potentially positive for financial markets, as it could help control inflation and encourage the Federal Reserve to consider cutting its main interest rate later this year. The two-year Treasury yield, which closely tracks expectations for Fed action, fell to 4.60% from 4.71%.

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The American credit rating agency Fitch Ratings is keeping a close watch on the judicial reform developments in Israel, Israel Hayom has learned. 

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The company has held a round of meetings with economic officials, with its economist – who visited Israel this week – expected to publish their decision regarding Israel in early August. 

Video: Anti-judicial reform protesters in Jerusalem

According to senior Israeli economic officials who met with members of the Fitch delegation, the company keeps tabs on the developments and has spoken with many officials and saw the anti-reform protests. 

"Fitch knows that Israel has a strong economy, but they want to see what will happen with the judicial issue. They are aware of the impact so far of the legislative process on high-tech investments and activity in general," one of the officials said. 

According to the source, for Fitch Ratings, "the non-extension of the term of [Bank of Israel] Governor [Amir Yaron] would be a worry. But they are aware that it could take a few months until Netanyahu decides on this. As we know, the prime minister only decides at the last minute."

In May, Fitch Ratings issued a special update regarding Israel, when it complemented its economic strength but expressed concern that the legislation could hurt Israel's A+ sovereign credit rating.

"Israel continues to face high levels of internal social and political tension, and the advancement of certain policies favored by the governing coalition could aggravate these strains and influence the sovereign's rating," Fitch said in a report released at the time titled "Strong Economic Growth Key to Israel's Debt Trajectory."

Similar questions are likely to be soon asked by the economists of the S&P ratings company as well, which in mid-May affirmed Israel's Aa-/A-1+ credit rating and stable outlook. 

The company's announcement said that its prediction was based on the assumption that an agreement would be reached on the judicial reform, allowing tensions to ease. 

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Prime Minister Benjamin Netanyahu on Saturday welcomed S&P affirming its Aa-/A-1+ credit rating and stable outlook for Israel, despite its warning that fallout from the government's contested judicial reform could hamper growth.

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"Maintaining Israel's positive rating during a globally challenging economic time is a vote of confidence in the right economic policy that we are leading," Netanyahu said in a joint statement with Finance Minister Bezalel Smotrich.

After plans by his ruling Coalition to limit Supreme Court powers sparked unprecedented protests in Israel, displeased Western allies and prompted dire economic warnings, Netanyahu in late March suspended the legislation to make way for negotiations with the Opposition. So far, talks have shown little sign of progress.

S&P said on Friday it expected domestic tensions to ease and a consensus to be reached. But the present uncertainty, it said, may weigh on growth, which it forecast at 1.5% for 2023.

Last month credit ratings agency Moody's downgraded its outlook for Israel, citing the judicial reform.

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S&P first upgraded Israel's rating to its current one – the highest rating awarded to the Jewish state to date – in August 2018, and reaffirmed it in February.

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In its report, S&P noted it was not "overly concerned" by Israel's substantial fiscal deficit of 53 million shekels (roughly $15 million) – 3.8% of the gross domestic product, despite its exceeding the government's deficit goal of NIS 40 million ($11 million), or 2.9% of the GDP.

This is the second consecutive year in which the ratio of debt to GDP has increased, but according to the agency, there is a consensus among Israeli politicians of the need to maintain a responsible fiscal policy, as demonstrated by the Finance Ministry's plans to impose a NIS 1.15 billion ($329 million) lateral budget cut on all government ministries between 2019 and 2021.

In Friday's research note, S&P stated Israel's economy is showing continued strong growth, which the firm expects to weather the current political instability. The report further said that the strengthening shekel –bolstered further by Bank of Israel Governor Amir Yaron's recent decision to maintain the key interest rate at 0.25% – was unlikely to harm Israeli exports.

S&P further cited as reasons for its decision the fact that the Israeli economy has grown for 15 consecutive years, the low unemployment rate (3.6%), and the fact that Israel's high tech industry is enjoying peak investment.

The agency did, however, warn that the prolonged political turmoil caused by having two general elections within six months of each other, was preventing the government from dealing with fundamental issues, such as lagging investment in infrastructure, excessive bureaucracy, and the challenge of integrating the ultra-Orthodox and Arabs sectors into the workforce.

Other potential threats to Israel's international credit score are the security threats from the Gaza Strip, Syria, and Iran.

Still, the agency lauded Israel's economy as "diversified, competitive, and resilient," saying it is expected to grow annually by 3% on average until 2022.

"Growth will stem from private consumption on the back of a strong labor market, continued corporate investment activity" and Israel's strong services export, S&P wrote.

The fact that the Leviathan offshore gas field is expected to become fully operational in 2020 will boost the economy further, the agency said.

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