European stocks moved slightly higher on Friday as markets attempted to stabilize after falling to three-month lows in the previous session.
However, concerns over rising bond yields and France’s fiscal outlook continued to weigh on investor sentiment across the region.
The pan-European STOXX 600 index gained around 0.2% in early trading after suffering its worst daily performance in three weeks.
Despite the modest recovery, the benchmark remained on track for its weakest weekly performance since mid-April, with losses of nearly 2% for the week.
Germany’s DAX, France’s CAC 40 and London’s FTSE 100 each rose by around 0.2%.
French Fiscal Concerns Drive Bond Market Stress
The weak start to October has been largely driven by a broad selloff in European government bonds.
Investors have become increasingly concerned about France’s fiscal position following the release of the government’s 2027 draft budget.
France’s 10-year government bond yield climbed to its highest level since 2002 as investors demanded a larger premium to hold French debt.
French-German Bond Spread Widens Sharply
The yield spread between French and German 10-year government bonds widened beyond 140 basis points.
That marked its widest level since the height of the Eurozone sovereign debt crisis in 2012.
The sharp increase in French borrowing costs has intensified concerns about fiscal sustainability and broader financial stability within the region.
Euro Comes Under Pressure
The growing fiscal uncertainty in France has also weighed on the euro.
Widening bond spreads and concerns over government finances pushed the single currency toward its weakest levels against the U.S. dollar since 2025.
The move highlights how stress in European fixed-income markets is spilling over into foreign exchange markets.
Eurozone Inflation Data in Focus
Investors are now preparing for the preliminary September Eurozone inflation report.
Economists expect headline inflation to rise to around 3.6%, up from 3.2% in August.
Higher energy prices linked to ongoing geopolitical tensions in the Middle East are expected to be a major driver of the increase.
A stronger-than-expected inflation reading could reinforce expectations that European interest rates may remain elevated for longer.
U.S. Jobs Report Could Move Global Markets
Attention is also turning toward the September U.S. employment report.
A strong nonfarm payrolls reading could strengthen expectations that the Federal Reserve will maintain a higher-for-longer interest-rate stance.
That could push U.S. Treasury yields even higher and place additional pressure on global equity markets.
European Stocks Remain Under Pressure
European shares have managed a modest rebound, but market conditions remain fragile.
Higher bond yields, French fiscal concerns and uncertainty around inflation continue to weigh on sentiment.
Investors are now watching both Eurozone inflation data and the U.S. jobs report for clues about the next move in interest rates and global bond markets.
