European shares rebound as French banks rally despite flat GDP revision
European equities recovered ground led by French financials and luxury stocks, even as downwardly revised French GDP data highlighted mounting fiscal and growth challenges for the euro zone.
European shares rose, driven by a rebound in French equities, as investors digested a mix of corporate gains and sobering macroeconomic data. French lenders Societe Generale, BNP Paribas, and Credit Agricole advanced between 1 percent and 1.9 percent, recovering from the prior session’s slump.
Corporate news also provided upward momentum across the continent. EssilorLuxottica gained 2.4 percent following the announcement of a new share buyback plan, helping lift the broader luxury sector by 2.3 percent for its best performance in over a month.
Beneath the market rally, fresh data underscored severe challenges facing the euro zone’s second-largest economy. France’s second-quarter GDP growth was revised down to flat, erasing a preliminary estimate of 0.2 percent expansion and signaling weaker momentum.
Charlotte de Montpellier, a senior economist at ING, noted that these figures suggest the economy came very close to a technical recession in the first half of the year. She warned that additional fiscal consolidation measures will be required in 2026 to keep the public deficit below 5 percent, stating, "Without further measures, and with growth remaining so weak, the deficit could end up even higher than last year."
Adding to the pressure, Fitch is expected to review France’s credit rating later in the day. This comes exactly a year after the agency downgraded the country to a record-low A-plus.
Beyond French fiscal concerns, markets assessed the implications of recent monetary policy commentary. The Fed chair reiterated a strict focus on returning inflation to the 2 percent target during the Jackson Hole speech, while offering minimal guidance on future rate decisions.
Jeffrey Roach, chief economist at LPL Financial, highlighted this shift in central bank communication. "We are entering a new era of monetary policy, one defined by less signalling, greater emphasis on real-time data, and a willingness to rethink economic first principles as AI reshapes the economy's productive capacity," he said.
Concurrently, traders have increased bets on European Central Bank rate hikes in recent weeks. These expectations follow rising energy prices linked to the U.S.-Israeli war with Iran, which has continued to weigh on the broader STOXX 600 index.
Despite this macroeconomic headwind, cyclical sectors found support. Automakers advanced 2.5 percent for their largest gain in more than two months, led by a 4.5 percent rise in BMW shares.
Individual corporate outlooks also drove sharp moves in specific equities. Austrian construction group Strabag surged 15.8 percent to a record high after lifting its annual guidance, while Belgium’s Ackermans & Van Haaren climbed 8.2 percent following stronger first-half results and an upgraded net profit growth forecast.
