European equities traded modestly higher on Monday as investors assessed elevated sovereign bond yields and rising crude oil prices alongside continued geopolitical uncertainty.
The pan-European STOXX 600 gained 0.3%, while Germany’s DAX was broadly unchanged. France’s CAC 40 and the UK’s FTSE 100 both advanced 0.2%.
The moves came after a volatile month for European equities, during which higher borrowing costs and changes in expectations for monetary policy affected market sentiment.
STOXX 600 Heads for First Monthly Decline in Six Months
The STOXX 600 was down almost 2% for September and was on course to record its first monthly decline in six months.
European equities have faced higher sovereign bond yields, which reached levels not seen since the 2008 global financial crisis, according to the supplied information.
Factors affecting markets during the month included a European Central Bank interest rate increase, comments from central bank policymakers indicating a restrictive policy stance and warnings concerning the pace of development in the artificial intelligence sector.
“AI investment is becoming less about promising narratives and more about companies’ ability to deliver on them,” said Javier de Berenguer, Fund Selector at MAPFRE Asset Management.
Higher sovereign bond yields can increase borrowing costs and the discount rates applied to future corporate earnings, which can affect equity valuations.
Middle East Developments Continue to Affect Sentiment
Geopolitical developments in the Middle East also remained a factor for European markets.
Investors continued to monitor exchanges between US President Donald Trump and Iranian leaders concerning the Strait of Hormuz, with uncertainty surrounding diplomatic negotiations and the regional security situation contributing to volatility in energy markets.
“Equities have been held back to some extent by geopolitical risk,” Berenguer said.
He added: “Increasing exposure to longer-term debt could be a sensible strategy.”
Oil prices remained among the factors affecting inflation and interest-rate expectations, particularly as markets assessed the potential implications of energy costs for central bank policy.
Eurozone Consumer Confidence and Lagarde Comments Awaited
Investors were also awaiting eurozone consumer confidence data later in the session for indications of household sentiment amid higher energy costs and borrowing rates.
Attention was expected to turn to comments from European Central Bank President Christine Lagarde.
Market participants will be looking for indications of how the ECB views inflation, energy-market developments and the outlook for monetary policy during the final quarter.
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