Eurozone Growth Surprises with Resilience Amid Energy Crisis

The Eurozone's business activity saw a significant upside surprise in September PMIs, indicating strengthening growth and resilience despite the ongoing energy crisis.

This upward trend is expected to be validated by this week's flash inflation report, which should show a rebound in both headline and core inflation indices. This development will further support the ECB's concerns and its recent policy shift towards hawkishness.

However, French government bonds are facing a particularly tough time amid the global sell-off in government bonds. The risk premium to German Bunds has widened to levels last seen during the 2012 euro crisis.

The ECB may take some comfort from the well-behaved peripheral spreads outside of France. Nevertheless, the upcoming French election cycle in 2027 poses unique tail risks to the common currency.