European stocks and the euro slide back toward last week's lows with Brent at $101.83

Measured in dollars, the two declines stack. A 1.02% fall in the STOXX 600 and a 0.62% fall in the euro multiply out to a loss of about 1.63% on the day for an unhedged holder ^[22], against 0.35% on S&P 500 futures ^[16]. Both readings were taken during Wednesday's session, before the 10-year Treasury auction later in the day ^[12], so the gap is approximate.

Oil added less than the headline price suggests. If Brent's 1.2% gain to $101.83 is measured from the prior settlement, it started Wednesday near $100.62, so the day's increment was about $1.21 ^[21].

The pressure specific to Europe sits in Paris. Expected increases in ECB rates and political uncertainty in the run-up to the 2027 election have raised questions about whether France can put its finances in order, and French bonds have been under pressure as a result ^[6]. Working back from Wednesday's 139.5 basis points, the spread over Bunds stood near 128.5 before the day's widening ^[20]. "Clearly the market is punishing France on its level of debt," said Aneeka Gupta, director of research at WisdomTree ^[8].

Jeremy Batstone-Carr, an economist at Raymond James, described a market pulled in several directions. "In the very early stages of the fourth quarter, typically the best quarter of the year for equity returns, markets are being driven by a confusing 'stocks up, US breadth down, yields up, oil down and up, and down...' narrative," he said ^[18]. Earnings may keep holding the index up, as Gupta argues: "We haven't seen a big, strong sell-off and that's primarily because earnings are doing the heavy lifting," she said ^[7]. France may break first instead, with the spread returning to the almost 160 basis points it reached last week, about 20 points above Wednesday's level ^[20]. Or the driver may be American. US longer-dated yields hit a 24-year high on Monday ^[11], and Georgette Boele, senior currency and oil strategist at ABN AMRO, said: "The interest rate spread between Germany and the US became more negative, which provided support to the US dollar against the euro" ^[17].

In my view the test for a Europe-exposed portfolio this week is the currency more than the index. The euro at $1.1188 is 0.24% above its 17-month low, less than half of Wednesday's fall ^[23]. The STOXX 600 has 0.84% of room above last week's low ^[19] and, on Gupta's account, earnings expectations she called "really strong" ^[13]. On this evidence investors are not selling European equities in bulk ^[7]. The counter-case is Boele's. "We continue to believe that financial markets are pricing in too many rate increases by the Fed and the ECB," she said ^[9], and traders have already cut the odds of an October Fed hike to 19% from about 50% a week earlier ^[10]. The view is wrong if the STOXX 600 breaks 624.85 while the euro holds above $1.1161 ^{[3] [14]}.