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European Stocks Edge Higher as Political Uncertainty in France Looms

European equities ticked higher on Monday, with investors weighing political instability in France, stronger oil prices, and sector-specific moves ahead of a key European Central Bank (ECB) policy decision later this week.

France in Focus as No-Confidence Vote Nears

The pan-European STOXX 600 rose 0.21% to 550.37 points by 08:22 GMT, with France’s CAC 40 up 0.22%. Gains came despite looming political turmoil in Paris, where Prime Minister François Bayrou faces an almost certain defeat in a no-confidence vote on Monday.

Bayrou’s likely exit would mark France’s fifth prime minister in three years, complicating efforts to rein in public debt as the country prepares for multiple credit rating reviews this week.

French equities have underperformed regional peers this year, weighed down by surging long-dated bond yields amid debt concerns. “We think French stocks will remain under pressure and the bonds will remain under pressure,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, while adding that contagion across broader European markets should be limited.

Sector Moves: Banks, Energy, and Defence Lead

Banking stocks led gains, up nearly 1%, rebounding after weak U.S. jobs data bolstered expectations of a 25 basis point Fed rate cut later this month.

Energy stocks rose 0.8%, supported by a 1.6% jump in global crude prices, as prospects of further sanctions on Russian oil overshadowed OPEC+’s planned production hike.

Defence shares also advanced, with Rheinmetall climbing 1.5%, on expectations of higher military spending amid heightened geopolitical tensions.

Corporate Headlines

  • Nestlé shares slid 1.7% after CEO Laurent Freixe was dismissed following a board investigation into misconduct. He was replaced by Philipp Navratil, head of the Nespresso unit.
  • Novo Nordisk fell 1.3% as U.S. regulators announced tighter oversight of obesity drug ingredients.
  • Phoenix Group slumped 5.8% after unveiling half-year results and confirming plans to rebrand as Standard Life Plc in March 2026.

Macro and Policy Outlook

German trade data offered a mixed picture: exports unexpectedly fell in July due to weaker U.S. demand from tariffs, but industrial output rose.

Markets now await Thursday’s ECB policy decision. Economists expect the central bank to keep rates steady at 2%, citing inflation near target but lingering risks from U.S. tariffs and sluggish Eurozone growth.

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