France's Budget Fever and FDA's New Deal: Where Are Investors' Money Flowing?

[Ben Graham]

European markets open higher amid a turbulent political week

European stock exchanges edged up on Monday, setting the tone for what promises to be a tense and eventful week. The spotlight is on France, where political instability looms once again: the country may soon be searching for its fifth prime minister in just three years.

France under pressure: no-confidence vote and credit rating risks

Prime Minister Francois Bayrou is expected to face a no-confidence vote later today, a move that could cost him his post. At the same time, the eurozone's second-largest economy is grappling with mounting public debt, while investors brace for the first in a series of sovereign credit rating reviews due this week.

Indices show modest gains

The pan-European STOXX 600 rose 0.21 percent, reaching 550.37 points by 08:22 GMT. France's CAC 40 advanced 0.22 percent.

Banks rebound after recent losses

Financial stocks led the upswing, with the European banking index climbing nearly 1 percent, recovering part of last week's decline. The rebound was fueled by expectations that the US Federal Reserve could cut interest rates by 25 basis points at the end of the month, following weaker-than-anticipated American labor market data.

Energy and defense sectors strengthen

European oil and gas firms added 0.8 percent, mirroring a 1.6 percent jump in global crude prices.

The defense sector also benefited from heightened geopolitical concerns: Rheinmetall shares advanced 1.5 percent, while the broader defense index climbed nearly 1 percent.

Pharma stocks under pressure

European healthcare shares slipped by half a percent, with Novo Nordisk leading the decline, losing 1.3 percent. The downturn followed a statement from the US Food and Drug Administration, which announced tighter checks on imported ingredients for weight-loss drugs. The agency voiced concerns that many shipments could be counterfeit and potentially harmful.

Insurance sector hit by Phoenix drop

Shares of Phoenix Group tumbled nearly 6 percent after the UK insurer released its half-year results. The company also announced it would rebrand as Standard Life Plc in March 2026, adding further weight to the sell-off.

Fed outlook boosts global equities

Hopes of an interest rate cut by the Federal Reserve continued to lift sentiment. Futures on the S&P 500 rose 0.2 percent, bringing the index close to last week's record intraday high. European stocks advanced 0.2 percent, while Asian markets gained 0.7 percent.

Political shift in Tokyo

The week's first major political shake-up came from Japan, where Prime Minister Shigeru Ishiba resigned. Markets reacted unevenly: the yen and long-term bonds weakened, while equities rallied. Traders interpreted the turmoil as a sign that the Bank of Japan is less likely to raise rates in the near term.

Paris and Tokyo weigh on currency markets

The combined political uncertainty in France and Japan has added pressure on the dollar. Despite disappointing US labor data last Friday — which reinforced expectations of a quarter-point Fed rate cut by month-end and even hinted at a slim chance of a half-point move — the greenback failed to strengthen.

Currencies: euro edges higher

At the start of the week, the euro inched up by just 0.1 percent, trading at 1.1731 against the dollar. The greenback gained modestly versus the yen, settling at 147.6. A weaker Swiss franc and antipodean currencies did little to boost the single currency further.

Treasury yields hold steady

After a sharp drop last Friday, US Treasury yields remained largely unchanged. The 10-year yield slipped to 4.08 percent, while the two-year note, which is more sensitive to Federal Reserve policy, stood at 3.50 percent.

Inflation data in focus

Markets are now awaiting Wednesday's release of the US Consumer Price Index, the final major indicator before the Fed's upcoming meeting. A stronger-than-expected reading could reduce the likelihood of an aggressive rate cut.

ECB meeting ahead

On Thursday, attention will shift to the European Central Bank. Analysts widely expect policymakers to keep borrowing costs unchanged for the second meeting in a row.

Gold reaches new heights

On the commodities front, gold continued its rally, setting a fresh all-time high at 3616 dollars per ounce. The metal has already surged 37 percent this year, extending the momentum after a 27 percent gain in 2024.

Oil prices gain on OPEC+ decision

Both Brent and West Texas Intermediate crude climbed 1.6 percent after OPEC+ members agreed over the weekend to slow the pace of production increases starting in October. The move reflects concerns over weakening global demand and has lent additional support to oil markets.

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