Europe midday: Stocks hit new highs despite political gridlock in France

(Sharecast News) - European stocks set new record highs on Wednesday morning, with broad-based gains across the continent lifting the Stoxx 600 up 0.5% by lunchtime despite ongoing political uncertainty in France.

However, the mood was still cautious with gold's safe-haven characteristics driving the commodity further above the $4,000 mark.

The pan-European Stoxx 600 was trading 2.72 points higher at 571.99 - on track to top last Friday's all-time closing high of 570.45. Even the CAC 40 in Paris was up 0.6% as sentiment recovers after heavy falls on Monday following the abrupt resignation of newly appointed prime minister Sebastien Lecornu.

Lecornu has now been tasked with holding talks with various parties in an attempt to form a new government, though the pressure is now mounting on president Emmanuel Macron to call a snap election or resign in order to end the ongoing political gridlock.

"France is increasingly looking like a warning sign that the spending needs of the nation's social democracy are outpacing its ability to write cheques," said Steve Clayton, head of equity funds at Hargreaves Lansdown. "Either way, despite stock markets hitting new highs around the world in recent weeks, it looks like some investors are looking for a safe haven and chasing gold ever higher for now."

Gold prices, which have soared more than 50% this year, were trading at $4,035 a troy ounce on Wednesday after settling above $4,000 for the first time ever on Tuesday - 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, German industrial output dropped 4.3% in August, erasing a revised 1.3% increase in July, according to Destatis on Wednesday. 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 the combination of annual plant closures for holidays and production changeovers.

Market movers

Shares in BMW plunged in Frankfurt on Wednesday 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. Group earnings before tax are now predicted to "decline slightly", compared with earlier guidance of an unchanged result from last year.

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

London-listed 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, is lower than the �950 originally earmarked, lifting shares of Lloyds, Close Brothers and Barclays.

Sports apparel group Puma was a high riser on the Stoxx 600 after Bank of America upgraded the stock from 'underperform' to 'neutral', hiking its target price from �14 to �23.