European stock markets ended higher on Monday, while volatility was pronounced in Paris as the French government, targeted by two motions of censure from the left and far right, threatened to fall this week.

In Paris, the volatile CAC 40 gained 0.02% to 7,236.89 points. In Frankfurt, the Dax advanced by 1.57% and in London, the FTSE 100 gained 0.31%.

The EuroStoxx 50 index gained 0.88%, the FTSEurofirst 300 0.71% and the Stoxx 600 0.66%.

On Monday, French Prime Minister Michel Barnier pledged his government's responsibility for the draft social security budget (PLFSS) for 2025, exposing himself in return to censure from left-wing opposition MPs and the Rassemblement National (RN).

A last-minute concession by the Prime Minister was not enough to win the support of the RN to avoid recourse to Article 49.3 of the Constitution, which allows the bill to be passed without a vote.

The forthcoming vote on a motion of censure against the government of Michel Barnier, who has only been in office since September, has heightened fears about the sustainability of France's public debt, and accelerated the sell-off of the euro, as the political crisis threatens to drag on.

"With no new elections due before next summer, this can only lead to an intensification of the political paralysis that has plagued France since Emmanuel Macron's ill-fated decision to call early elections in June," said Rupert Thompson, chief economist at IBOSS.

VALUES

French banks were affected on Monday by the political situation in France: BNP Paribas lost 1.2%, Crédit Agricole SA 0.87% and Société Générale 2.6%.

French luxury brands, such as Hermès and LVMH, gained over 3% each, benefiting from the euro's weakness.

Stellantis also suffered (-6.3%) after the abrupt resignation of its CEO, Carlos Tavares, as did the European automotive index, which gave up 0.39%.

French payments group Worldline, which according to five people familiar with the matter is attracting interest from private equity firms, gained 14%.

Ipsos, on the other hand, lost 4.4% after confirming on Monday that it was in talks to acquire Kantar Media.

Elsewhere in Europe, Delivery Hero was down 10.5%, the delivery platform having announced on Monday that the drivers of its Glovo unit in Spain would be hired as employees.

ON WALL STREET

At closing time in Europe, the Dow Jones lost 0.31%, while the Standard & Poor's 500 gained 0.21% and the Nasdaq Composite 0.98%.

Chipmaker Intel gained 4.7% after announcing the retirement of its CEO Pat Gelsinger.

INDICATORS OF THE DAY

Investors had to digest Monday's sharp drop in eurozone manufacturing activity in November, as well as a sharp decline in demand that dims prospects of an imminent recovery, according to the definitive HCOB purchasing managers' index (PMI) for the eurozone, compiled by S&P Global.

In France, the manufacturing sector posted its biggest drop in new orders in November since the first wave of the COVID-19 pandemic in 2020, against a backdrop of weakening domestic and international demand, while in Germany the sector continued to contract.

In the US, the ISM manufacturing index improved in November, however, with orders rising for the first time in eight months and factories experiencing a significant drop in input prices, according to the Institute for Supply Management's (ISM) monthly survey published on Monday.

CHANGES

The euro retreated sharply on Monday and is on course for its biggest daily drop since early November on growing concerns about the future of the government in France and the fate of its proposed budget to reduce the country's public deficit.

The European currency dropped 0.9% to $1.0480.

The greenback, on the other hand, continued to gain ground (+0.73%) following the release of strong US manufacturing data, which reinforced bets that the Federal Reserve could halt interest rate cuts at its December meeting.

RATES

Eurozone bond yields retreated on Monday, as demand for safe-haven German bonds increased and investors learned of last month's sharp drop in manufacturing activity in the eurozone.

The yield on the ten-year German Bund thus lost 5.2 basis points to 2.0370%, while that on its two-year counterpart gave up 5.7 basis points to 1.8990%.

In France, on the other hand, the yield on the ten-year OAT gained 1.9 basis points to 2.9150% on concerns about French sovereign debt.

The spread between French and German 10-year bond yields - a measure of French borrowing costs relative to the eurozone benchmark - widened to 88bp, closing in on last week's 90bp, a 12-year high.

The yield on ten-year Treasuries fell by 1.4 basis points to 4.1801%. On the other hand, the two-year, the most rate-sensitive, gained 1.6 basis points to 4.1899%, as data showed the strength of the economy and argued for a more gradual reduction in interest rates.

OIL

Oil prices retreated on Monday after their recent rises.

Brent crude lost 0.38% to $71.57 a barrel, while US light crude (West Texas Intermediate, WTI) dropped 0.35% to $67.76.

TO BE CONTINUED ON DECEMBER 3:

(Some data may be slightly delayed)

(Written by Diana Mandiá)

by Diana Mandia