European indices rise as PMIs improve, yet rising long-end yields reflect fiscal and political tensions

European indices rally on strong PMI data 

With United States (US) stock markets closed for the Labour Day long weekend, attention turned to Europe. Indices rallied following stronger-than-expected purchasing managers' index (PMI) data. However, gains were tempered by a concerning rise in long-end bond yields across the region, driven by fiscal and political uncertainties.

The final reading of the Eurozone HCOB manufacturing PMI rose to 50.7 in August, signalling expansion for the first time since June 2022. Germany's PMI reached 49.8, its highest since mid-2022. Meanwhile, the Eurozone unemployment rate dropped to 6.2% in July from 6.3%, matching its record low from November 2024, underscoring a resilient labour market.

Bond yield movements and political tensions

Against this positive economic backdrop, long-end bond yields surged. Germany's 30-year bond yield reached its highest level since 2011, and the United Kingdom’s (UK) 30-year bond peaked at levels not seen since 1998. In France, the 10-year bond yield climbed above 3.5%, outpacing equivalent yields in Italy, Spain, and Greece, driven by fiscal and political uncertainty.

Prime Minister François Bayrou's minority government faces potential collapse amid contentious proposals for significant spending cuts and the elimination of public holidays like Easter Monday and May 8.

Euro area: inflation

Date: Tuesday, 2 September at 7.00pm AEST

European inflation data for August is set to be released tonight, expected to ease to 2.2% year-on-year (YoY) from 2.3% prior. This precedes the resumption of US markets with a data-rich week beginning with the Institute for Supply Management (ISM) manufacturing PMI for August, anticipated to rise to 49 from 48 previously.

Euro area core inflation chart

FTSE technical analysis

Last month, the FTSE 100 reached a fresh record high of 9357 before undergoing a four-session losing streak to close the month. This marked the longest losing streak for the index since April, following an almost 25% rally from April lows.

Given this context, while the FTSE trades below the 9357-record high, a corrective pullback is expected, ideally taking the index back towards the 8900 level, aligning with the highs of March and June. A decisive break below 8900 would open the path to a deeper decline towards support at 8700 from the June low.

Conversely, a sustained break above 9357 would signal a resumed uptrend towards 9500.

FTSE daily chart

DAX technical analysis

Last month, the Germany 40 (DAX) failed to hit a record high for the first time since May. The index experienced five consecutive lower closes toward month-end, finishing 0.68% lower for August.

While the DAX remains below the 24,500 - 24,650 resistance zone (from the highs of June, July, and August), a corrective pullback is anticipated.

Ideally, this would return the index towards the 23,450 area, stemming from March highs. A break below 23,450 may lead to further declines towards 23,000, the June low.

Conversely, a sustained break above 24,500 - 24,650 would signify a continuation of the uptrend toward 25,000.

DAX daily chart

• _{Source: TradingView. The figures stated are as of 2 September 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}