Sluggish Economic Outlook Contribute to Weakening Euro and Rising Bond Yields

Bridgette Randall
13 Jan, 2025
London

European stock market indexes declined in Monday's trading, and bond yields advanced to seven-month highs amid ongoing political turmoil and a sluggish economic outlook. 

Benchmark indexes in Paris, Frankfurt, Milan, and London declined after bond yields rose and the euro and the pound sank 0.5% and approached two-year lows.

Investors turned cautious and shifted expectations of future U.S. rate cuts after December's payrolls growth accelerated, reducing the possibility of an imminent rate cut and boosting the dollar. 

Moreover, ongoing political turmoil in Germany and France contributed to market anxieties and supported the increase in bond yields in the currency union. 

In the week ahead, investors are looking forward to the release of inflation updates in France, Spain, Italy, and the Euro Area. 

In the UK, investors are anticipating the release of retail sales, international trade data, industrial production, and retail sales.

China's exports and trade surplus soared in December and in 2024, and imports edged up about 1%, indicating a decreasing reliance on manufactured products from the West. 

 

Europe Indexes and Yields

The DAX index decreased by 0.6% to 20,094.32; the CAC-40 index fell by 0.7% to 7,374.96; and the FTSE 100 index inched lower by 0.3% to 8,226.77. 

In the previous week, the DAX increased 2.2%, the CAC-40 index advanced 2.7%, and the FTSE 100 index gained 0.8%. 

The yield on 10-year German bonds edged higher to 2.59%, French bonds rose to 3.43%, the UK gilts increased to 4.86%, and Italian bonds rose to 3.84%.

Currency traders are anticipating the euro to trade below parity with the U.S. dollar as the European Central Bank implements its four rate cuts this year, and the British pound is likely to sink to $1.03 amid worsening economic outlook. 

The euro edged lower to $1.02; the British pound inched lower to $1.204; and the U.S. dollar strengthened to 91.67 Swiss cents.

Brent crude increased $1.01 to $81.07 a barrel, and the Dutch TTF natural gas fell by €1.73 to €47.17 per MWh. 

 

Europe Stock Movers

Energy stocks advanced after the U.S. placed additional and tougher sanctions on Russian oil and gas producers and shipping companies doing business with China and India.

BP plc increased 1% to 429.15 pence, Shell PLC added 1% to 2,653.50, and TotalEnergies SE advanced 0.7% to €55.64. 

Luxury stocks in Paris and Milan struggled to stay above the flatline after China's imports edged up only 1% in December. 

Hermes International SCA increased 1% to €2,335.0, Kering SA decreased 1.1% to €225.15, and LVMH fell 0.8% to €639.80. 

Leading automakers in Europe advanced despite China's 2024 electric vehicle exports surging to 6.04 million units in 2024, an increase of 22% from a year ago. 

Mercedes-Benz Group advanced 0.8% to €55.49, Volkswagen AG increased 0.1% to €92.70, and Ferrari NV fell 0.9% to €406.30. 

Deutsche Bank AG decreased 2.4% to €16.68, Commerzbank AG declined 0.5% to €16.57, Banco Santander eased 1.3% to €4.51, HSBC fell 1.3% to 789.10 pence, and Barclays PLC eased 1%.