European stock markets outperformed their global counterparties this week, driven by the energy sector’s strong gains.
Global stock markets are mixed this week with Wall Street on a retreat, and the European equities broadly higher. While surging government bond yields weighed down the US stock markets, rising energy and metal prices have buoyed the European counterparties.
However, currencies moved in the opposite direction. The US dollar continued to strengthen, pressuring other currencies in the G-10 group. The euro remained at a two-year low against the US dollar, and the British Pound tumbled to its lowest level since November 2023 following the UK government bond turmoil.
Europe
Major European benchmarks were higher for the week, with the pan-European Stoxx 600 index up 1.51%, the DAX rising 2.06%, the CAC 40 rising 2.86%, and the UK’s FTSE 100 climbing 1.16%.
On a weekly basis, most sectors in the Euro Stoxx 600 posted gains. The energy sector led the broad rally, up more than 5% from last week, driven by a strong surge in oil and gas prices. BP’s shares rose 7%, Shell gained 5.5%, and TotalEnergies advanced 4.9%. Both crude oil and natural gas experienced strong gains at the start of 2025 amid increasing demand during a cold winter and concerns over intensifying geopolitical tensions.
Technology and financial stocks also outperformed, with ASML jumping 8.7% and SAP up 3.8% weekly. The banking sector was buoyed by UBS shares, which surged nearly 10% week on week to a 16-year high following a Wall Street Journal report that the bank would be fined hundreds of millions in a settlement with the US Justice Department. The case is related to Credit Suisse, which was investigated for violating a plea agreement involving assistance to US taxpayers in filing false income tax returns.
On the economic front, inflation in the eurozone increased to 2.4% year-on-year in December, up from 2.2% in the previous month, as expected. Core inflation, which excludes volatile items like food and energy, came in at 2.7% from a year ago, also in line with estimates. The data consolidated expectations for the European Central Bank to cut the interest rate by 25 basis points in January.
In the UK, the 10-year gilt yield skyrocketed to its highest level since August 2008 earlier in the week due to concerns about persistent inflationary pressure. The Labour government’s £26 billion (€31 billion) budget tax hike is expected to lead to sticky inflation in the country as businesses warned they would pass costs on to consumers. Investors fled UK assets, with government bonds and sterling tumbling.
Wall Street
The US stock markets began the first full week of trading in 2025 on a negative note. Over the past five trading days, the Dow Jones Industrial Average fell 0.23%, the S&P 500 declined 0.41%, and the Nasdaq Composite dropped 0.73%. The small-cap Russell 2000 fell 1.3% amid expectations of a slower pace of rate cuts.
The FOMC meeting minutes revealed that Federal Reserve officials were concerned about the impacts of Trump’s policies on inflation and the US economy. Policymakers indicated they would move more slowly toward rate cuts due to uncertainties. US government bond yields rose further, with the yield on the 10-year Treasury note reaching its highest level since April. The bond selloff pressured equity markets and caused a broad decline.
In the S&P 500, eight out of eleven sectors were in negative territory, with consumer staples and real estate leading losses, down 2.04% and 1.55% respectively for the week. The energy sector outperformed thanks to surging oil and gas prices. Healthcare also posted weekly gains.
The Magnificent Seven stocks were mixed as the tech rally lost steam. Nvidia shares retreated sharply after hitting an all-time high following the company’s unveiling of a new artificial intelligence chip. The stock rose 4.33% weekly. Other tech giants, including Meta Platforms, Alphabet, Microsoft, and Amazon, also ended higher between 1-4%. However, Apple and Tesla fell 3.1% and 2.2% respectively.
The number of job openings in November 2024 exceeded expectations, suggesting the labour market remained resilient. The upcoming non-farm payroll data will be critical for market sentiment later today. Stronger-than-expected job data could further pressure US stock markets, while a softer reading may provide investors with a reprieve from recent selloffs.
Asia
China’s inflation decelerated for the fourth consecutive month in December, rising just 0.1% year-on-year. The data suggests the country continued to face deflationary pressure amid sluggish consumer demand despite the government’s sweeping stimulus measures. The factory gate price index fell 2.3%, marking 27 consecutive months of deflation. Major Chinese benchmarks ended the week lower, with the Hang Seng Index down 3.16% and the China A50 sliding 1.47%.
Australia’s trimmed mean core inflation rose 3.2% year on year in November, down from 3.5% in the previous month and nearing the Reserve Bank of Australia’s target level. This data strengthened expectations for the central bank to start cutting interest rates sooner, buoying local stock markets. The ASX 200 gained 0.5% this week, with the healthcare sector leading gains.
