European Preview: Bond Yields to Dictate Stock Performance

The direction of bond yields will be the key factor for European stock markets next week, according to Bruno Verstraete, CEO of Nautilus Invest.

A further rise in yield for the 10-Year Treasury and German Bund, on the back of a continued selloff in bonds, could see stocks trend sharply downward.

"It depends on where the yields are going, and that depends on inflation," Verstraete told CNBC.com.

"Tension in the middle east is clearly on increase," he added, which could further encourage investors into the bond market.

Also in focus next week will be the Paris Air Show, where the battle for airplane sales between Airbus' super jumbos A380/A350 and Boeing's 787 Dreamliner will continue to mount.

On the political front, French citizens will be reacting to results from second-round parliamentary elections on Sunday. French President Nicolas Sarkozy is expected to win an overwhelming parliamentary majority for the Union for a Popular Movement (UMP) party, according to pollsters Reuters reported.

Sarkozy's ability to secure swooping economic reforms in France relies heavily on establishing a strong parliamentary majority through the vote.

In economic news, Germany will release its ZEW business survey at 10 am London time on Tuesday. Economists expect it to show a further improvement in outlook, Reuters reported.

And the Bank of England will release minutes from its interest rate policy meeting on Wednesday. They could give investors an indication on whether the central bank sees a need to raise rates further, after holding at 5.5% last week.

Thursday sees the start a two-day EU Summit in Brussels, but an end to the meetings under Germany's presidency term. The summit will also be British Prime Minister Tony Blair's last as a national leader.

Also on Thursday, the two-day Cannes Advertising Festival gets underway.

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