Europe close: Stocks rally as gold surges; car makers buck trend

(Sharecast News) - European stocks ended in the black on Wednesday despite ongoing political uncertainty in France, as gold prices surged past the $4,000 mark for the first time.

The pan European Stoxx 600 index closed up 0.8% at 573.79, while Germany's Dax ended 0.9% higher at 24,597.13. France's CAC 40 rose 1.1% to 8,060.13 as sentiment recovered after heavy falls on Monday following the abrupt resignation of newly-appointed prime minister Sebastien Lecornu.

Kathleen Brooks, research director at XTB, said concerns about French politics eased, with French bond yields falling across the curve.

"Outgoing PM Sebastian Lecornu has expressed optimism that he can form a new government, and that a budget can be passed through parliament by the end of this year," she said.

"This comes after the centrists made a big concession to the Socialist left and agreed to shelve plans to lift the retirement age to 64 from 62. Lecornu also said that the budget deficit would fall to 5% next year, although it is unclear where savings will come from.

"The stage is being set for a major showdown about the economic direction of France at the next Presidential election, in 2027. With that can potentially kicked down the road, European stocks and bonds can continue to rally."

In commodity markets, gold prices breached the $4,000 an ounce mark for the first time ever, fuelled in recent days by the uncertainty stemming from the ongoing federal shutdown in the US.

"Traditionally, investors would load up on the shiny stuff when markets look gloomy, not when they're motoring ahead. It shows that investors are hedging their bets, particularly as there are growing concerns that euphoria around AI has gone too far and the bubble could burst at some point," said Russ Mould, investment director at AJ Bell.

In economic data, figures from Destatis showed that German industrial output dropped 4.3% in August, erasing a revised 1.3% increase in July. That was the sharpest monthly decrease since March 2022 and well under the consensus forecast of -1.0%.

A sharp fall in output across the automotive industry, Germany's largest industrial branch, was largely to blame, with production down 18.5% from July - though partly due to a combination of annual plant closures for holidays and production changeovers.

Market movers

Shares in BMW tumbled more than 8% in Frankfurt after the German auto giant warned that profits would fall this year after adjusting its outlook for weaker sales in China and the impact of US trade tariffs.

Mercedes-Benz, Daimler Truck, Renault and Porsche also fell in sympathy.

In London, motor finance lenders gained after the financial regulator ruled that they are to pay out �11bn in compensation to customers following a probe into "unfair" practices. The redress, which works out to an average �700 per customer, was lower than the �950 originally earmarked, lifting shares of Lloyds and Close Brothers.

Sports apparel group Puma surged after Bank of America upgraded the stock from 'underperform' to 'neutral', hiking its target price from �14 to �23.