European stocks and the euro fell on Monday as political unrest in France intensified concerns about the country’s deteriorating fiscal outlook, while US stock futures rebounded from last week’s technology-led selloff ahead of a crucial round of earnings from major artificial intelligence companies.
Investors also weighed fresh geopolitical risks involving Russia and Iran, volatile energy prices and mounting questions about massive AI investments generating sufficient returns.
The pan-European STOXX 600 fell 0.7% by 0837 GMT, while France’s CAC 40 dropped more than 1% as protests highlighted the government’s difficulties in containing its large budget deficit. The euro declined 0.3% to $1.1203, remaining close to last week’s 16-month low of $1.1113. Meanwhile, the US dollar index rose 0.2% to 101.9.
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The contrasting performance of European equities and US futures reflected different pressures confronting the two markets. In Europe, investors were concerned about France’s fiscal stability and the implications for government borrowing costs. In the United States, attention shifted towards corporate earnings and whether the technology sector could regain momentum after a sharp selloff.
A decline in oil prices provided some relief to broader markets after President Donald Trump moved to waive certain sanctions on Russia. However, uncertainty surrounding the decision, combined with escalating tensions in the Middle East, kept investors cautious about the outlook for energy prices, inflation and economic growth.
Wall Street futures pointed to a stronger opening after last week’s losses. Nasdaq futures gained 1.1%, while S&P 500 futures rose 0.6%, following a difficult week for semiconductor stocks.
The Philadelphia Semiconductor Index plunged 11.4% over the week, recording its longest losing streak since 2008. The decline underlined growing sensitivity to the technology sector’s valuations and the scale of capital being committed to AI infrastructure.
Investors are now looking to a series of corporate earnings reports for evidence that the spending boom is translating into stronger revenue and profitability. Meta Platforms, Tesla, Lam Research and Texas Instruments are among the companies scheduled to report results on Wednesday, while SpaceX results are due on Tuesday.
Meta is of special interest because it is one of five major AI hyperscalers expected to increase combined capital expenditure to approximately $1.2 trillion next year, according to Goldman Sachs. The spending reflects an intensifying race to build data centers, acquire advanced chips and expand the computing capacity required to develop and operate AI systems.
The scale of the investment has made earnings announcements more needed for investors seeking to determine whether the industry’s expansion is economically sustainable. Higher capital expenditure can strengthen companies’ competitive positions, but it can also pressure free cash flow, increase depreciation expenses and raise the returns required to justify current valuations.
Ipek Ozkardeskaya, senior analyst at Swissquote, said investors needed more convincing evidence that AI spending was producing tangible financial benefits.
“Investors will want to hear more than another ambitious spending plan: they will want evidence that AI is helping generate enough revenue and profit to justify the bill,” she said.
The question is becoming more consequential as investors assess whether AI-related revenue growth can keep pace with infrastructure costs. Even companies reporting strong earnings could face scrutiny if their spending plans rise faster than their ability to demonstrate commercial returns.
Overall US corporate earnings are still expected to increase by about 30%, largely driven by the technology sector. That forecast leaves the market heavily dependent on large technology companies delivering results strong enough to sustain confidence in the broader earnings outlook.
France’s Debt Concerns Contrast With Falling US Treasury Yields
France’s fiscal pressures continued to weigh on European markets, pushing government borrowing costs higher even as US Treasury yields declined.
France’s 10-year government bond yield rose 7.3 basis points to 4.857%, while Germany’s 10-year yield increased 1.6 basis points to 3.425%. The widening pressure on French debt reflects investor concern about the government’s ability to rein in its deficit amid political instability and public opposition to fiscal restraint.
Higher borrowing costs could further complicate France’s efforts to stabilize its public finances. When yields rise, refinancing existing debt and financing new deficits become more expensive, potentially narrowing the government’s room to maneuver. Persistent political resistance to spending cuts or revenue measures could deepen that challenge.
The situation also presents a broader risk for European markets, where fiscal concerns in a major economy can influence investor assessments of sovereign debt and the region’s financial stability.
In contrast, US Treasury bonds attracted demand as investors assessed geopolitical uncertainty and the possibility that higher energy prices could weaken economic growth. The 10-year Treasury yield fell 2.5 basis points to 5.07%, extending a rally after recording its largest weekly decline in more than eight months.
The movement in bond yields illustrates the competing forces affecting global markets. Investors are balancing inflation risks associated with energy disruptions against the possibility that elevated costs could slow economic activity. Lower yields can support demand for non-yielding assets such as gold, although persistent inflation could limit central banks’ ability to ease monetary policy.
Oil prices also remained under pressure. Brent crude futures fell 1.8% to $104 a barrel after reaching a five-month high on Friday, while US crude declined 1.9% to $99.40 a barrel.
Trump said a final decision had not been made on the proposed waiver of some Russian sanctions. US Secretary of State Marco Rubio said the president would take up to 60 days to assess the impact of such a move, leaving uncertainty over its implications for global energy supply.
Meanwhile, Iran reported that another tanker had struck a mine in the Strait of Hormuz, a critical shipping route for international oil and gas supplies. Any sustained disruption could raise transportation costs, tighten energy markets and complicate efforts to contain inflation.
“Until the situation becomes clearer, inflationary pressures will continue to mount, keeping central bankers under pressure and weighing on growth prospects,” economists at CIC Market Solutions said in a note.
For central banks, the combination of higher energy costs and weaker growth presents a difficult policy trade-off. Maintaining restrictive interest rates could help contain inflation but further constrain economic activity, while easing policy too soon could allow price pressures to become entrenched.
Asian Markets Diverge
Asian equities delivered a mixed performance as investors assessed China’s latest economic data alongside regional market-specific concerns.
Japan’s Nikkei fell 0.6%, while South Korea’s benchmark gained approximately 1.8%. Taiwan’s market declined 0.6%, and MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.01%.
Chinese blue-chip stocks rose 0.1% after data showed that the world’s second-largest economy expanded by 4.5% in the third quarter, slightly exceeding market expectations.
Retail sales increased 1.1% in September, beating forecasts, while industrial output grew 5.5%, in line with expectations. The figures provided some support for investor confidence, although the pace of expansion and the composition of growth remain important considerations for markets assessing the strength of domestic demand.
China’s yuan strengthened to 6.6815 per dollar, its strongest level against the US currency since June 2022.
Indonesia’s stock market, however, suffered a sharp setback. Jakarta’s benchmark fell 3.6% to fresh lows after index provider MSCI said it was considering moving Indonesia from its emerging-markets classification to standalone status.
Such a change could affect the country’s visibility among international investors and influence investment flows tied to global equity benchmarks. The market reaction highlighted how index classification decisions can create substantial uncertainty for markets that depend on foreign portfolio investment.
Elsewhere, gold gained 0.3% to $4,183 an ounce as declining bond yields improved the appeal of an asset that does not pay interest. Bitcoin rose 2.1%, moving back above $82,000.
The diverging movements across equities, bonds, currencies, and commodities show that investors are responding to several overlapping risks rather than a single market narrative.