European stock markets: French debt, oil and artificial intelligence fuel caution
Major European stock exchanges are declining in a context marked by political and budgetary tensions in France, rising oil prices and questions about artificial intelligence investments. Following an already difficult Monday session, investors remain cautious ahead of several corporate earnings releases. At the start of trading, the CAC 40 was down 0.42%, the German DAX down 0.85% and the STOXX Europe 600 down 0.58%.
French debt under scrutiny
The French political situation remains one of the main sources of concern. Violence that occurred over the weekend, in connection with protests against rising costs of living, complicates an already tense budgetary context. Investors are particularly questioning the government's ability to secure adoption of the 2027 budget and to undertake a sustainable reduction in the public deficit. On Monday, the CAC 40 closed down 1.11%, while the yield on the French ten-year bond reached 4.93% at close, its highest level since July 2002. The spread with the German yield stood at 148 basis points, close to its 2012 highs. However, a softening of French rates was observed on Tuesday morning. Attention is also focused on Moody's, which is to review France's sovereign rating on Friday, October 23. The agency currently assigns France a Aa3 rating, with a negative outlook.
Oil above $110 per barrel
On the international front, the Middle East conflict continues to weigh on economic prospects. Brent crude is trading above $110 per barrel, in an environment of strong tensions over energy supplies. This increase provides support for oil companies, but represents a risk factor for sectors with high energy consumption. It also fuels inflationary concerns, as markets seek to anticipate the next decisions of central banks. The persistence of high energy prices could complicate their monetary policy and keep financing costs at significant levels for businesses and governments.
Artificial intelligence raises new questions
The technology sector is another point of fragility. After several volatile sessions, investors are questioning the profitability of massive investments devoted to artificial intelligence development, particularly in data centers. The increasing recourse to debt to finance these infrastructures raises questions in an environment of high interest rates. In Europe, the technology segment of the STOXX 600 was down 1.54% at the start of trading, despite the rebound recorded Monday on Wall Street. The upcoming earnings releases from major American technology groups will be closely watched, starting with Meta's, expected on Wednesday. They will notably allow for assessing the evolution of capital expenditure and profit margin prospects for the sector.
