European stocks moved lower at the start of October and the fourth quarter on Thursday, as investors assessed higher sovereign bond yields, fiscal developments in France and continued energy-related inflation pressures.
The pan-European STOXX 600 fell 1.4%, reaching its lowest level in more than three months. France’s CAC 40 declined 1.4%, Germany’s DAX lost 0.7% and the UK’s FTSE 100 fell 1.6%.
Government bond yields have risen in recent weeks amid concerns over inflation and sovereign borrowing requirements.
French Budget Plans Draw Attention as Bond Yields Rise
Germany’s 10-year government bond yield, a benchmark for the euro area, increased by one basis point after reaching 3.6526% earlier in the week, its highest level since June 2009.
France’s 10-year government bond yield reached its highest level since 2002 ahead of Prime Minister Sébastien Lecornu’s expected presentation of the government’s 2027 draft budget later in the session.
The proposed budget targets €54 billion in spending reductions as the government seeks to address a deficit projected at 5.4% of gross domestic product.
Higher borrowing costs can increase debt-servicing expenses for governments, companies and households, making sovereign bond markets an important focus for investors.
Energy Prices and Inflation Remain in Focus
Developments in the Middle East also remained a focus for European markets, with negotiations between the United States and Iran aimed at ending the seven-month conflict yet to produce an agreement.
Crude oil and European natural gas prices remained elevated, contributing to concerns about the impact of energy costs on inflation.
Preliminary September consumer price data showed inflation accelerating more than expected in several European economies, including France, Italy and Spain, with higher petrol, diesel and wholesale gas prices contributing to the increases.
The inflation readings may influence expectations for European Central Bank monetary policy, although future interest-rate decisions will depend on incoming economic data and the ECB’s assessment of the inflation outlook.
Markets Assess Softer US Economic Data
Investors were also assessing softer-than-expected US economic data released during the previous session.
August US Personal Consumption Expenditures inflation came in below market expectations, while European markets continued to contend with higher regional inflation readings, energy prices and elevated bond yields.
Among individual stocks, Sanofi (EU:SAN) rose as much as 3.6% after the French pharmaceutical company agreed to pay Regeneron $1 billion upfront and potentially up to a further $7 billion as part of an expansion of their partnership.
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