European stocks rose Tuesday as French bond yields eased after Marine Le Pen pledged deeper spending cuts and ECB Chief Economist Philip Lane played down inflation risks. Germany's DAX and Spain's IBEX 35 both climbed, extending a recovery from last week's bond market selloff.
European equities climbed Tuesday as fixed-income volatility eased overnight, with France's 10-year bond yield falling 14 basis points to 4.72% in its biggest one-day drop since May. The move came after far-right leader Marine Le Pen pledged sharper spending cuts ahead of next year's presidential election, giving indices across the continent room to extend their recovery from a bond rout that had disrupted the start of the fourth quarter.
French bond yields drop after Le Pen's savings pledge
Le Pen told journalists Tuesday she would target €140 billion in net savings by 2032, up from the €125 billion she had originally planned over a five-year presidency. She said the plan would bring France's budget deficit down to the EU's 3% limit as soon as 2030, from 5.4% this year.
Laura Cooper, head of macro credit at Nuveen, said the pledge is contributing to the rates relief seen Tuesday morning, but added that markets are still waiting on implementation details. The fiscal turmoil has become a top campaign issue ahead of the April-May election, where Le Pen currently leads in the polls.
DAX and Stoxx 600 extend their recovery
The Stoxx Europe 600 advanced 1%, consolidating after three sessions of rangebound trading as desks digested last week's slump in French government debt. Germany's DAX rose 0.9% and France's CAC 40 gained 0.7%, after falling as much as 1.1% on Monday. Spain's IBEX 35 rose 1.2% as investors took a snap-election call in stride.
That fixed-income dislocation had previously blown out French-German yield spreads toward crisis-era peaks and dragged the euro to multi-month lows. Tuesday's pause in the yield climb followed the French government's release of its 2027 draft budget.
ECB's Lane plays down inflation pass-through risk
ECB Chief Economist Philip Lane told Italian news agency ANSA that high regional energy prices have yet to trigger aggressive second-round effects on inflation across the eurozone. According to ANSA: "We have not seen so far very strong second-round effects", he said, adding it remains too simplistic to label the situation as either an adverse or baseline scenario.
Equity strategists are now turning to third-quarter corporate earnings, which begin next week and will show how company margins are holding up against high input costs and elevated debt-refinancing burdens.
Sources: Investing.com, Reuters via Investing.com
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