European stocks rise, French political uncertainty in focus

The DAX index in Germany jumped 0.9%, the CAC 40 in France added 0.8% and the FTSE 100 in the U.K. gained 0.1%

European stocks rose Monday after soft U.S. payrolls data ramped up bets on a September interest rate cut, although French political uncertainty is likely to limit gains.

The DAX index in Germany jumped 0.9%, the CAC 40 in France added 0.8% and the FTSE 100 in the U.K. gained 0.1%.

Risk assets received a boost Monday after investors digested the previous week’s disappointing U.S. jobs report, cementing expectations of a rate cut from the central bank when it meets next week.

Signs of a slowing U.S. economy means that markets are very confident that the bank will cut interest rates by at least 25 basis points during its September 16-17 meeting.

The only question left to be answered is whether it’s a 25 basis point cut or a big 50 basis point cut, and the U.S. inflation report on Thursday will be crucial in that debate.

However, gains are likely to be limited as France’s fourth prime minister in three years, François Bayrou, faces almost certain defeat in a confidence vote later in the session, tipping the eurozone’s second-biggest economy further into political uncertainty.

France faces acute pressure to repair its finances, with last year’s deficit nearly double the EU’s 3% limit of economic output, but Bayrou’s budget bill is unlikely to secure a majority.

The turmoil threatens France’s ability to rein in its debt, with the country’s 30-year government bond yield last week reaching a level last seen in June 2009.

France’s credit rating was downgraded by Moody’s after its previous government collapsed last year, and a repeat would be a heavier blow, pushing it to a lower rating and raising the risk of forced selling of its already pressured bonds.