European stocks slightly higher, while bonds under pressure

Europe’s broad STOXX 600 rose 0.3%, helped by healthcare stocks and improved manufacturing data

European stock markets were slightly higher and Chinese tech giants surged on Monday, while European long-dated bonds remained under heavy pressure.

Europe’s broad STOXX 600 rose 0.3%, helped by healthcare stocks and improved manufacturing data, while there was more excitement in Asia where Chinese tech giant Alibaba’s Hong Kong shares rose 18% after it said AI drove a surge in revenue to its cloud business.

The focus for European investors was France, where political parties are jostling ahead of next week’s confidence vote in Prime Minister Francois Bayrou, which he is expected to lose.

Markets have stabilised after selling off on the announcement of the confidence vote, but further developments could drive renewed focus on France’s embattled finances.

The gap between French and German 10-year yields widened sharply last week, but was last steadier at 77 basis points.

We see more than even odds that the government fails the no confidence vote. It is likely to lead to a period of political uncertainty and a possibility of early elections. We retain our negative view on France and see France spreads moving towards 90bp level, Mohit Kumar, chief European economist at Jefferies, said.

In other markets, U.S. share futures were flat.

The U.S. is likely to be another focus of the rest of the week, with a raft of data there including surveys of manufacturing and services, and labour numbers culminating in the August payrolls report on Friday.

Median forecasts are for employment to have climbed by 75,000 jobs, though estimates range widely from zero to a 110,000 gain amid uncertainty caused by July’s surprisingly weak report. The jobless rate is seen ticking up to 4.3%.

The jobs market is the number one factor for the Federal Reserve’s policy path. There’s lots of talk from the Fed and from market commentators that labour markets are cooling leading to a rate cut in September, but it’s not a clear-cut situation, Samy Chaar, chief economist at Lombard Odier, said.