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Investor sentiment diverged on both sides of the Atlantic yesterday. In the Eurozone, government bond yields were mixed, with French spreads widening after the European Commission endorsed the French draft budget for 2025, which aims to reduce public deficit from 6.1% of GDP to 5%. The budget has yet to be approved in parliament amid a political stalemate.

With US markets closed for the Thanksgiving holiday, European investors remained focused on the French budget impasse. Eurozone bond yields fell and peripheral spreads narrowed yesterday as Barnier's government weighed concessions on limiting electricity tax hikes, as demanded by Le Pen, to avert a no-confidence vote.

Investors traded cautiously amid political tensions in France, where lawmakers are set to vote today on no-confidence motions. Euro area sovereign bond yields edged lower, and France's risk premium narrowed to 85bp after reaching 88bp in the previous session. The region's main stock indices advanced slightly, and the euro held steady at 1.05 against the dollar.

Euro area markets had a cautious session ahead of the no-confidence vote in France, approved late last night. Sovereign bond yields were mostly flat, and the region's main equity indices posted small gains. The euro was flat against its main peers, leaving its cross with the US dollar at 1.05.

The advance PMI figures for December extended the recent trend of divergent growth between the US and euro area countries. The composite PMI in the US rose from 54.9 last month to 56.6, whereas the euro area composite index stayed below 50, albeit improving from 48.3 to 49.5, boosted by a recovery in the services sector (to 51.4).

Following the FOMC meeting on Wednesday, during which the Fed signaled a cautious path ahead, euro area financial markets caught up to their US counterparts during yesterday's session. Sovereign bond yields rose by +6bp in the region, and the main equity indices ended sharply lower. Meanwhile, the euro traded around $1.03 against the dollar.

Investors started the first full week of trading of the year with a slightly higher risk appetite than at the end of December. In the eurozone, German government bond yields rose after December CPI came in above expectations, while peripheral spreads fell as the final December PMI reading surprised to the upside across the eurozone, but especially in the periphery.

Financial markets traded on a mixed tone during yesterday's session. In the euro area, sovereign bond yields edged lower as Eurozone PPI came close to expectations (0.0% yoy, 0.4% mom) and French industrial production contracted by 1.7% yoy, more than expected (-1.2% yoy). ECB office members expressed potentially stronger policy easing ahead.

Markets were mixed during last session as several data releases for the euro area and the US was digested by investors. In the euro area, February's flash composite PMI came slightly below expectations (50.2 vs 50.5 expected), with manufacturing PMI still in contractionary territory (47.3) and services PMI still in expansion (50.7).

Euro area sovereign bond yields rose significantly after Merz, expected to become Germany's next chancellor, announced a political deal to raise hundreds of millions of euros for defense and infrastructure, claiming, "the rule for our defense has to be 'whatever it takes'". Germany's 10-year sovereign yield saw its largest single-day gain since 1990 (+30bp).

Markets were mixed in the first session of the week as investors remained cautious on the outlook of the global economy. In the euro area, sovereign bonds ended flat and the main stock indices edged lower as markets await further details on tariffs from the US. The euro area composite PMI rose to 50.4 this month from 50.2 in February.

Financial markets traded cautiously during yesterday's session, ahead of Q1 GDP growth data to be released today, both for the US and for the euro area. Yesterday’s preliminary data showed Spanish GDP grew +0.6% qoq (+2.8% yoy) in Q1. Euro area Economic Sentiment Indicator dropped to 93.6 in April from 95.0 in March, and below market expectations of 94.5.

Markets turned defensive on Friday as geopolitical tensions in the Middle East escalated. Sovereign bond yields rose across the curve on both sides of the Atlantic, with eurozone peripheral spreads widening slightly. Concerns that surging oil prices could reignite inflationary pressures clouded other macro developments: in the US, the University of Michigan’s consumer sentiment index for June surprised to the upside, while Eurozone industrial production for April fell by more than expected.