European Markets Diverge as Yemen Conflict Escalates

European equity markets showed divergent trends on Monday. The STOXX 600 rose 0.4% following reports that Eurozone business activity reached its fastest expansion pace in nearly three and a half years. In contrast, France's CAC 40 dropped 0.8% to a six-month low after the 2027 draft budget triggered a sell-off in government debt.

Economic pressures mounted as Eurozone inflation climbed to 3.8% due to rising energy costs. Philip Lane, Chief Economist of the European Central Bank, advocated for a measured policy response to the spike. Meanwhile, global markets reacted to a cooling U.S. labor market, where September job creation slowed to 29,000, lowering expectations for a Federal Reserve rate hike in October.

Geopolitical instability increased in the Middle East after the Saudi-backed government of Yemen launched a military campaign to recapture territory from Houthi forces. The Houthi militia responded by targeting Saudi Aramco energy infrastructure south of Riyadh with missiles and drones. In Europe, Spanish Prime Minister Pedro Sánchez called for a snap election to be held on November 29.