Stocks retreat as euro weakens and French bond risk premium rises

MSCI's global equity index dropped 0.6% on October 7 as stocks declined amid elevated oil prices and worries that France's fiscal problems could spread to other debt markets. The euro also lost ground, while investors demanded a larger premium to hold French government bonds.

U.S. stocks retreated from records set in the preceding session: the S&P 500 declined 0.3% and the Nasdaq lost 0.4%. Europe's STOXX 600 shed 1%, leaving it close to its lowest level since June.

Brent hovered near $100 per barrel as investors considered supply risks posed by a storm moving toward U.S. oil-producing areas and Houthi attacks on Saudi Arabia. U.S. crude eased 0.9% to $88.63 per barrel. WisdomTree research director Aneeka Gupta said robust earnings expectations were helping stocks resist pressure from rising oil prices.

The premium for French bond yields over German Bunds increased by about 11 basis points, reaching nearly 140 basis points after two sessions of narrowing. French debt has faced pressure from expectations for higher European Central Bank rates and political uncertainty surrounding the 2027 election.

A 0.6% decline took the euro to $1.119, while the dollar index advanced about 0.4%. ABN AMRO senior currency and oil strategist Georgette Boele said the dollar benefited against the euro as the German-U.S. interest-rate differential became more negative.

The benchmark 10-year U.S. Treasury yield added 1.91 basis points, reaching 5.29%. Investors awaited a 10-year debt auction and Federal Reserve minutes covering its September 15 to 16 meeting. Traders assigned a 19% probability to an October rate increase, compared with about 50% a week earlier.