Rising energy and metals prices boost European stock markets!
Global stock markets are mixed this week with Wall Street in a retreat, and European shares broadly higher. While rising government bond yields weigh on US stock markets, rising energy and metals prices have boosted European peers.
However, currencies moved in the opposite direction. The US dollar continued to strengthen, putting pressure on other currencies in the G-10 group. The euro remained at a two-year low against the US dollar and the British pound fell to its lowest level since November 2023 after the UK government bond turmoil.
Major European benchmarks were higher for the week, with the pan-European Stoxx 600 up 1.51%, the DAX up 2.06%, the CAC 40 up 2.86%, and the UK's FTSE 100 up 1.16 %.
On a weekly basis, most sectors in the Euro Stoxx 600 posted gains. The energy sector led broad gains, up more than 5% from last week, driven by a strong rise in oil and gas prices. BP shares rose 7%, Shell gained 5.5%, and TotalEnergies advanced 4.9%. Both crude oil and natural gas saw strong gains in early 2025 amid rising demand during a cold winter and concerns about intensifying geopolitical tensions.
Technology and financial stocks also performed better, with ASML jumping 8.7% and SAP up 3.8% on the week. The banking sector was boosted by shares of UBS, which rose nearly 10% week-on-week to a 16-year high after a Wall Street Journal report that the bank would be fined hundreds of millions in a settlement with the Justice Department of the USA. The case involves Credit Suisse, which was investigated for violating a plea agreement that involved assisting US taxpayers in filing false income tax returns.
On the economic front, eurozone inflation rose to 2.4% year-on-year in December, up from 2.2% last month, as expected. Core inflation, which excludes volatile items such as food and energy, came in at 2.7% from a year earlier, also in line with estimates. The data consolidated expectations that the European Central Bank will cut interest rates by 25 basis points in January.
In the United Kingdom, the 10-year walnut yield rose to its highest level since August 2008 earlier in the week on concerns about continued inflationary pressure. The Labor government's £26bn (€31bn) budget tax hike is expected to lead to sustained inflation in the country after businesses warned they would pass the costs on to consumers. Investors fled UK assets, with government bonds and sterling falling.
US stock markets started 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 fell 0.41%, and the Nasdaq Composite fell 0.73%. The small-cap Russell 2000 fell 1.3% amid expectations for a slower pace of rate cuts.
Minutes of the FOMC meeting revealed that Federal Reserve officials were concerned about the effects of Trump's policies on inflation and the US economy. Policymakers indicated they would move more slowly toward lowering rates because of the uncertainties. US government bond yields rose further, with the yield on the 10-year Treasury note hitting its highest level since April. The bond selloff affected equity markets and caused a broad decline.
In the S&P 500, eight of the eleven sectors were in negative territory, with consumer and real estate the main losers, down 2.04% and 1.55% respectively for the week. The energy sector fared better thanks to rising oil and gas prices. Healthcare also posted weekly gains.
Shares of the Magnificent Seven were mixed as the tech rally lost steam. Shares of Nvidia pulled back 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 finished 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 that the labor market remained resilient. The upcoming nonfarm payrolls data will be critical to market sentiment later today. Stronger-than-expected jobs data could further pressure US stock markets, while a softer reading could provide investors with a break from the recent selloff.
China's inflation slowed for a fourth straight month in December, rising just 0.1% year-on-year. The data suggested the country continued to face deflationary pressure amid sluggish consumer demand, despite sweeping government 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 down 1.47%.
Australia's trimmed average core inflation rose 3.2% year-on-year in November, up from 3.5% the previous month and close to the Reserve Bank of Australia's target level. These data strengthened expectations that the central bank will start cutting interest rates sooner, boosting local stock markets. The ASX 200 gained 0.5% this week, with the healthcare sector leading the gains.
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