European stock markets rise as FTSE 100 weighs; UK bond yields soar amid ruling party turmoil

U.K. bond prices, as well as the FTSE 100, tumbled sharply after Prime Minister Keir Starmer failed to fully back Finance Minister Rachel Reeves in the wake of a government U-turn over welfare reforms.

The pan-European Stoxx 600 index provisionally closed 0.2% higher after a midday tumble into the red. Regionally, the U.K.'s FTSE failed to recover, ending the day 0.1% lower. France's CAC 40 and Germany's DAX were up 1% and 0.5%, respectively.

Banks in continental Europe are in the spotlight, having the best first-half returns since 1997, according to FactSet. The Stoxx 600 Banks index is up 29% in the first six months of this year.

One irony from today’s moves in the bond market is that gilt investors could have played a part in U.K. Chancellor Rachel Reeves keeping her job.

“The reaction in the gilt market to the possibility of Reeves going may, counterintuitively, be the thing that keeps her in post,” said Andrew Wishart, U.K. economist at Berenberg.

“If the Chancellor cannot discipline the more left-wing Labour MPs, the gilt market will have to do it,” he added. “Because that would raise government debt interest costs reducing the money available for public services, that would be a worse outcome.”