Europe midday: Stoxx 600 makes gains as stocks in Paris jump

(Sharecast News) - Strong gains in France were propelling European markets higher on Tuesday as investors watched political developments in Paris, while bond yields held steady after their recent surge. The Cac 40 was up 1.1% by lunchtime, helping push the Stoxx 600 0.6% higher to 511.47 as the pan-European benchmark bounces back after a two-day sell-off.

French 10-year OAT yields were just 0.5 basis points higher at 3.465%, continuing to trade at levels not seen since late-2023. François Bayrou is facing his first big test as France's new prime minister on Tuesday as he outlines his top priorities in a general policy speech to parliament.

"OATs have traded in a range vs Bunds this year despite political noise, but an unfavourable outcome might increase volatility and bring the 10Y spread back to highs around 90 bps. A budget passing could boost OATs, but economic and political realities would still hurt them in the medium term," said Patrick Munnelly, partner of market strategy at Tickmill Group.

The yield on a 10-year German bund was up 1.3bp at 2.607% after hitting its highest level since July the previous session, while the 10-year UK Gilt yield was 0.8bp lower at 4.884% after surging to its steepest since the financial crisis of 2008.

"The higher government bond yields go, the greater the competition against equities for investors' money. At some point, investors will take the view that they can get a decent yield from bonds for lower risk compared with investing in stocks," said Dan Coatsworth, investment analyst at AJ Bell.

"Companies trading on high multiples of earnings are vulnerable to share price weakness. Rising bond yields can lead to investors being less willing to pay a premium rating for a share, leading to deratings. Many of the big tech stocks are ones to watch given their premium equity ratings."

Economic data was thin on the ground across Europe on Tuesday, though the market's focus will shift to the States later on, with the US producer price index for December due out at 1430 CEST. Consumer price inflation figures from the US are also due out on Wednesday.

Market movers

Mining stocks in London were performing well as metals prices increased, with Glencore, Rio Tinto and Fresnillo among the best performers. Also higher were UK housebuilders after a bullish update from Persimmon lifted sentiment in the sector.

Leading the downside on the Stoxx 600 was British retailer JD Sports Fashion which dropped 8% after downgrading its full-year profit forecast as it posted a drop in revenue for November and December in challenging markets.

Energy major BP was also out of favour after saying it now expects to report lower upstream production for the fourth quarter. European peers Repsol and TotalEnergies were also lower, pulling back after tracking oil prices to their highest levels since August.

Auto stocks across the continent were in demand, including VW, BMW, Porsche and Stellantis.