European indices rally on strong PMI data
With United States (US) stock markets closed for the Labour Day long weekend, attention turned to Europe. Indices rallied following stronger-than-expected purchasing managers’ index (PMI) data. However, gains were tempered by a concerning rise in long-end bond yields across the region, driven by fiscal and political uncertainties.
The final reading of the Eurozone HCOB manufacturing PMI rose to 50.7 in August, signalling expansion for the first time since June 2022. Germany’s PMI reached 49.8, its highest since mid-2022. Meanwhile, the Eurozone unemployment rate dropped to 6.2% in July from 6.3%, matching its record low from November 2024, underscoring a resilient labour market.
Bond yield movements and political tensions
Against this positive economic backdrop, long-end bond yields surged. Germany’s 30-year bond yield reached its highest level since 2011, and the United Kingdom’s (UK) 30-year bond peaked at levels not seen since 1998. In France, the 10-year bond yield climbed above 3.5%, outpacing equivalent yields in Italy, Spain, and Greece, driven by fiscal and political uncertainty.
Prime Minister François Bayrou’s minority government faces potential collapse amid contentious proposals for significant spending cuts and the elimination of public holidays like Easter Monday and May 8.
