European Shares Rally on Declining Bond Yields and China’s Economic Data
European shares closed the week on a high note, driven by a broad-based rally fueled by declining government bond yields and encouraging economic data from China. The STOXX 600, a key benchmark for European equities, rose by 0.7% on Friday, marking its fourth consecutive weekly gain. This represents the index’s longest winning streak since August 26 last year, with a weekly increase of over 2%.
The rally was broad, with most STOXX sub-sectors trading higher. Rate-sensitive sectors like construction and industrials led the charge, rising 1.6% and 1.5%,respectively. Meanwhile, euro zone consumer inflation for December aligned with expectations, providing further stability to the market.
Frank Elderson of the European Central Bank noted that while the bank is not yet done lowering interest rates, the timing and size of future policy easing remain uncertain. this cautious optimism was echoed in the performance of German bond yields, which saw their first weekly drop since early December 2024.
Investor confidence also received a boost from China’s economic performance, which met the government’s 5% growth target for the previous year, albeit with some imbalances. This positive sentiment lifted the basic resources sector, which gained 2%.
UK’s FTSE 100 outperformed its continental peers, climbing 1.3% to close at an all-time high. However,British retail sales unexpectedly fell in December,adding to a series of downbeat economic indicators. This has heightened expectations for a Bank of England interest rate cut next month.
The only sector in the red was healthcare, which fell 0.8%.Barclays expressed caution regarding European pharmaceuticals and life sciences, predicting a challenging first half of the year.Throughout the week, European equities benefited from a slowdown in U.S. core inflation, which has left the door open for potential interest rate cuts by the Federal Reserve.This global optimism was further bolstered by positive earnings from luxury giants like LVMH, Kering, and Swatch, following strong results from Cartier-owner Richemont.
Looking ahead, investors are turning their attention to the inauguration of Donald Trump as President of the United States. Any new policy announcements, particularly regarding trade tariffs, could have significant implications for Europe.
Axel Rudolph, senior technical analyst at IG, highlighted that asset allocation away from overvalued U.S. mega stocks into lower P/E ratio European shares, combined with a weak euro and sterling, has propelled the region’s indexes to record highs.
In individual stock movements, Swedish defense equipment maker Saab lost 5.3% after reporting fourth-quarter results. Conversely, Swiss duty-free retailer Avolta surged 8.4% after announcing plans to buy back shares worth 200 million Swiss francs ($220 million).
| Key Highlights | Details |
|—————————————-|—————————————————————————–|
| STOXX 600 Weekly Gain | Over 2%, marking fourth consecutive weekly rise |
| Top Performing sectors | Construction (+1.6%), Industrials (+1.5%), Basic Resources (+2%) |
| FTSE 100 Performance | Gained 1.3%, closing at an all-time high |
| Healthcare Sector | Fell 0.8%, with Barclays predicting a challenging first half of the year |
| Notable Stock Movements | saab (-5.3%),Avolta (+8.4%) |
As markets continue to navigate global economic shifts, the focus remains on central bank policies and geopolitical developments, which will likely shape the trajectory of European equities in the coming weeks.
