European shares slip on elevated bond yields and French fiscal strain

European equities traded lower on Thursday, with losses spread across most sectors. Elevated bond yields remain a source of risk for stocks.

The energy shock sustains inflation concerns while deteriorating public finances add further pressure on borrowing costs.

In the euro area, September inflation in Germany, France, Italy and Spain exceeded forecasts, keeping pressure on the European Central Bank to tighten further.

Earlier this week, ECB President Christine Lagarde argued that while the energy shock remains important, a measured response remains appropriate. Even so, markets continue to price in another interest rate increase before year-end.

France adds another layer to the challenging outlook. Concerns over public finances and political uncertainty ahead of next year’s presidential election have pushed the 10-year OAT yield to its highest level since 2002.

Energy prices could remain a key swing factor. Oil prices have been volatile as traders react to developments in Middle East negotiations and supply flows. A renewed rise in energy costs would reinforce inflation concerns and sustain yields, while declines could provide some relief to both interest rates and equities.