European stock markets higher; UK bond yields soar amid ruling party turmoil

UK PM's office backs finance minister as markets rattled

A spokesperson for U.K. Prime Minister Keir Starmer told CNBC in a statement: “[Finance Minister Rachel Reeves] is going nowhere. She has the Prime Minister's full backing. He has said it plenty of times, he doesn't need to repeat it every time the Leader of the Opposition speculates about Labour politicians.”

U.K. borrowing costs are still highly elevated — with the 10-year yield up 20 basis points — after Starmer was perceived to deflect a question over Reeves' future in parliament.

Ashley Webb, U.K. economist at Capital Economics, told CNBC: “The rise in gilt yields this morning appears to be in response to the uncertainty over Reeves' future as Chancellor. It suggests that the markets are worried that the government's future spending plans aren't deliverable, and the government will end up spending and borrowing more.”

Sterling is down 1% against the U.S. dollar.

UK borrowing costs jump after prime minister declines to back finance minister

U.K. bond yields jumped sharply during the weekly parliamentary debate session, 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 10-year gilt yield was 22 basis points higher at 1:33 p.m. in London, while the 2-year gilt yield jumped 10 basis points. The 30-year yield was up 22 basis points.

Asked by opposition party leader Kemi Badenoch whether Reeves would be in her post until the next election, Starmer did not answer directly, instead saying Badenoch would “certainly” not be in the post and going on to discuss her role as opposition leader.

The government was on Tuesday forced by its own party members to compromise on its proposed spending reforms, eroding potential savings.

“The chancellor is going nowhere, she has the prime minister's full backing,” Starmer's press secretary told reporters following the comments, according to Reuters.

Euro, sterling drop as U.S. dollar boosted by flurry of news and data

The euro is down 0.3% against the U.S. dollar this morning, while sterling is 0.4% lower as investors parse a host of data and political developments.

Releases on Tuesday showed U.S. job openings unexpectedly rose in May, while a gauge of manufacturing activity came in stronger than forecast. ADP payrolls figures are due today, while the final approval of President Donald Trump's “big beautiful” bill faces the House.

Strategists at ING said in a Wednesday note that Federal Reserve Chair Jerome Powell's cautious comments on rate cuts this week are “set to keep the dollar extremely sensitive to jobs and inflation figures.”

“Notably, Powell refused to rule out a July rate cut, so a sharp payrolls miss ... would give markets license to price in easing as soon as this month,” they said.

U.K. borrowing costs have meanwhile bounced back from a drop, with the yield on 10-year gilts last 4 basis points higher at 4.5% and the 30-year yield up 4 basis points at 4.815%.

Gilt yields eased Tuesday after Bank of England Governor Andrew Bailey told CNBC that all options are “on the table” regarding the central bank's future pace of quantitative tightening, which some argue has been putting pressure on long-dated yields. Fiscal concerns returned to the fore Wednesday, after the government was forced by its own party members to compromise on its welfare spending reforms, eroding potential savings.

Spectris shares up 5% after backing £4.1 billion KKR takeover

Shares of high-tech equipment maker Spectris are up around 5%, after the London-listed firm backed an improved £4.1 billion ($5.6 billion) takeover offer from private equity giant KKR.

In an announcement Wednesday, the Spectris board said it would recommend the £40 per sharecash acquisition offer, which represents a 96.3% premium to the closing price of Spectris shares on June 6, the last date before the start of its offer period.

The potential deal follows Spectris' support last month for a £37.63 per share proposal from KKR rival Advent.

UBS analyst Bruno Gjani said in a note last month that the Advent offer “potentially does not fully reflect the company's medium-term prospects.”

European markets open higher

European stock markets moved higher in early Wednesday deals, with the Stoxx 600 index up 0.35% shortly after the open.

Mining and banking stocks are leading gains, both up around 1.2%.

Danish wind turbine makers Vestas and Orsted have jumped 8.4% and 5%, respectively, as investors take in what the latest text of the U.S. One Big Beautiful Bill Act means for the renewables sector.

Analysts at Citi said the version that passed in the Senate on Tuesday “provides significant relief for wind.” An earlier draft drove down Vestas shares on Monday.

UK government passes welfare bill as IFS says tax rises now more likely

In overnight news from the U.K., Prime Minister Keir Starmer secured parliamentary support for his controversial welfare bill — but only after a last-minute climbdown and ditching key elements including plans to tighten eligibility criteria for welfare benefits.

The U-turn managed to stave off a larger-scale rebellion among his Labour party, though 49 of its MPs still voted against the bill.

In their original form, the government had estimated the reforms would cut £5 billion ($5.86 billion) from the welfare budget by the 2029-30 fiscal year, when the government's self-imposed rules require it to run a balanced day-to-day budget.

Now, the Resolution Foundation think tank estimates the bill will cost the government around £200 million annually by that point, adding more pressure on Finance Minister Rachel Reeves to implement tax rises or spending cuts in her fall budget.

The Institute for Fiscal Studies meanwhile noted that the government's failure to find any savings on benefits payments had effectively halved Reeves' margin of error against her main fiscal target in the budget.

“Since departmental spending plans are now effectively locked in, and the government has already had to row back on planned cuts to pensioner benefits and working-age benefits, tax rises would look increasingly likely. This will doubtless intensify the speculation over the summer about which taxes may rise and by how much,” Helen Miller, deputy director at the IFS, said.

What's coming up for markets on Wednesday

European traders will be keeping an eye on more action from the European Central Bank forum in Sintra, Portugal, on Wednesday, with ECB President Christine Lagarde due to address policymakers today.

CNBC has interviewed a number of central bank governors and officials at the forum, including ECB Chief Economist Philip Lane, Portugal's central bank Governor Mario Centeno and Bank of England Governor Andrew Bailey.

It's widely expected that the ECB will lower its key rate, the deposit facility rate, in September, after data released Tuesday showed the euro zone inflation rate hit the central bank's 2% target.

On the data front, unemployment figures are due from Spain, Italy and the wider European region.

There are no major earnings reports in Europe on Wednesday.

Here are the opening calls

Welcome to CNBC's live blog covering all the action in European financial markets on Wednesday, as well as the latest regional and global business news, data and earnings.

Futures data from IG suggests European markets will open higher, with London's FTSE looking set to open 0.2% higher at 8,804, Germany's DAX 0.4% higher at 23,803, France's CAC 40 up 0.5% at 7,702 and Italy's FTSE MIB up 0.6% at 39,841.

The positive start expected in Europe comes as global markets assess the status of trade talks and the prospect of deals before U.S. President Donald Trump's 90-day reprieve from higher import duties expires on July 9.

Traders are also digesting the latest comments from U.S. Federal Reserve Chair Jerome Powell, who said the central bank would have already cut interest rates if it weren't for U.S. President Donald Trump's tariff initiatives. Trump has repeatedly criticized Powell for the central bank's rate policy.

U.S. stock futures were little changed overnight, after investors began the second half with a reduced appetite for technology stocks. Singapore stocks hit a record high overnight amid mixed trading in the Asia-Pacific region.