As London and European traders headed for the exits, European shares closed mostly lower, with selling seen across most of the major markets. France's CAC led the declines with a fall of 1.68%, while Italian, Spanish and UK shares also finished under pressure. Germany's DAX was the lone bright spot, managing to eke out a modest gain of 0.27%.

The move came against a backdrop of firmer sovereign yields and a stronger policy backdrop in the U.S., where investors were reacting to a fresh batch of earnings, economic data and central bank commentary. That combination kept rate sensitivity in focus for European assets, even as the region's equity performance remained more mixed at the index level.

European equity closes:

• German DAX: +0.27%
• France's CAC: -1.68%
• UK FTSE 100: -0.79%
• Spain's Ibex: -0.93%
• Italy's FTSE MIB: -1.17%

In the European debt market, benchmark 10-year yields moved mostly higher despite the weakness in equities. German and French yields led the move, rising 1.4 and 1.3 basis points, respectively. The UK was the exception, with its 10-year gilt yield falling 1.3 basis points.

Higher yields matter for the equity backdrop because they can keep pressure on valuation-sensitive sectors, especially when investors are still assessing how long central banks will keep policy restrictive. For now, the European rates market is reflecting that policy uncertainty more directly than the stock market.

European 10-year yields:

• Germany: 3.251%, +1.4 basis points
• France: 4.101%, +1.3 basis points
• UK: 5.029%, -1.3 basis points
• Spain: 3.704%, +1.0 basis point
• Italy: 4.078%, +1.0 basis point

In the foreign exchange market, the U.S. dollar traded mostly lower against the major currencies. The Australian dollar led the gains, followed by the Canadian and New Zealand dollars. The euro, yen and Swiss franc were also marginally stronger, while the British pound was the only major currency trading slightly lower against the greenback.

U.S. dollar versus the majors:

• Australian dollar: +0.39%
• Canadian dollar: +0.14%
• New Zealand dollar: +0.12%
• Swiss franc: +0.24%
• Euro: +0.02%
• Japanese yen: +0.02%
• British pound: -0.01%

In the U.S. equity market, the major indices traded higher, supported by sharp post-earnings gains in Nvidia and Salesforce. Nvidia rose about 8% after another strong beat-and-raise quarter, while Salesforce surged approximately 19%. Those gains provided an especially strong lift to the technology-heavy Nasdaq indices, which tends to amplify reactions when large-cap growth names outperform.

U.S. equity indices:

• Dow Industrial Average: +167 points, or +0.31%
• S&P 500: +49.33 points, or +0.64%
• Nasdaq Composite: +336.79 points, or +1.29%
• Russell 2000: +11.67 points, or +0.39%
• Nasdaq 100: +310.43 points, or +1.06%

In the U.S. debt market, Treasury yields were modestly lower across the curve as traders digested the latest economic data and hawkish comments from Fed officials. Crude oil traded $0.35 higher at $82.57.

U.S. data: wider trade gap, steady labor market

On the economic front, the U.S. goods trade deficit ballooned to $118.80 billion, considerably wider than the $99.0 billion estimate. The larger deficit points to a potential drag from net trade on third-quarter GDP growth.

Labor market data remained steady. Initial jobless claims came in at 203,000, below the 208,000 estimate. Claims remain historically low and show little evidence of an increase in layoffs. However, the broader labor market continues to fit the "no fire, no hire" characterization: companies are generally holding on to workers, but hiring demand remains subdued.

Fed speakers strike hawkish tones

Cleveland Fed President Beth Hammack, a 2026 FOMC voter and policy hawk, said "now is the time to act," adding that she does not view current Fed policy as restrictive. Hammack said inflation has remained persistently above target and warned that the public could lose confidence in inflation returning to 2%. She also noted that her estimate of the neutral rate is higher than that of some other Fed officials.

Chicago Fed President Austan Goolsbee said his biggest near-term concern is that inflation has not been brought under control. He described the current low-hiring, low-firing labor market as unusual but said the economy, on balance, remains stable. Goolsbee also warned that political pressure on the Fed puts him "on edge," noting that political interference with central banks generally leads to higher inflation.

ECB minutes: unanimous pause, tightening bias

The ECB meeting minutes showed unanimous support for keeping interest rates unchanged. Policymakers judged that a pause was appropriate given the uncertainty surrounding the inflationary impact of the energy shock.

Members agreed that inflation risks remain tilted to the upside, although underlying inflation remains contained and longer-term inflation expectations are anchored. The ECB will reassess the outlook in September after receiving updated projections and additional information on inflation, wages and growth.

Although no decision was pre-committed, members generally agreed that another rate hike would likely be necessary unless the inflation outlook improves significantly. The eurozone economy has also remained more resilient than expected despite the Middle East conflict, higher energy prices and elevated uncertainty, leaving upcoming data on wages, growth and inflation central to the next policy debate.

ECB Governing Council member Dimitar Radev, speaking earlier, said the October and December meetings remain "live" for additional tightening. He warned that waiting for clear evidence of second-round inflation effects could leave the ECB behind the curve.

Radev described a 2.5% policy rate as roughly neutral but stressed that future decisions will depend on incoming economic data, updated projections and the impact of tighter financial conditions. His comments lean hawkish, although he stopped short of committing to further increases beyond September. Nevertheless, there have been reports from "sources" that the ECB will raise rates in September.

On the calendar

The U.S. Treasury will auction $44 billion of 7-year notes at 1 PM. The 2- and 5-year coupon issues were met with above-average demand (grades at B+).

The clock ticks down to the Jackson Hole speech by Fed's Warsh tomorrow at 10 AM.