On Thursday, European markets roared back with their strongest gains in months, buoyed by promising inflation data from both sides of the Atlantic. The notable rally in the pan-European Stoxx 600 index, which logged its best session in five months with a 1.3% gain, signals a shift from lingering pessimism to cautious optimism. Households, businesses, and investors alike are watching closely as cooling inflation hints at a more stable economic outlook.
European equities posted a stellar comeback after a challenging three-day losing streak. Every major sector moved higher, with retail stocks leading with a sharp 2.7% increase. Across regional benchmarks, the FTSE 100 climbed by 1.2%, Germany’s DAX surged 1.5%, and France’s CAC 40 posted a more measured yet promising 0.69% rise.
One of the day’s biggest winners was the U.K.’s housebuilding sector. Shares in Vistry Group, a leading construction company, surged by a remarkable 15.7% following an endorsement of its profit outlook. Analysts attribute the rally to falling bond yields, which have cooled alongside moderating inflation. The U.K.’s 10-year gilt yield dropped 16 basis points to 4.725%, while the 2-year gilt yield followed suit, falling to 4.44%. These declines reflect shifting expectations around interest rate policy, encouraging broader market confidence.
The rally was largely driven by better-than-expected inflation data, breathing hope into households and businesses grappling with the effects of rising costs. In the U.K., December 2024 inflation dropped to 2.5%, marginally beating expectations of 2.6%. This marks a crucial step toward price stability after months of cost-of-living pressures. Across the Atlantic, signs of relief emerged in the U.S., where core inflation slipped to 3.2%, slightly below forecasts, while the headline rate held steady at 2.9%.
These improvements send a clear message: monetary tightening from central banks may finally be yielding results. Market sentiment now reflects the possibility of fewer rate hikes ahead or even potential rate cuts later in the year. Kyle Chapman, an FX analyst at Ballinger Group, noted, “Markets are cautiously optimistic, pricing in fewer rate cuts than anticipated; if inflation continues to cool, investor expectations could shift further.”
European market gains reverberated across the globe, fueling a strong rally on Wall Street. The Dow Jones Industrial Average jumped by 647 points (1.5%), while the S&P 500 and Nasdaq Composite climbed 1.4% and 1.7%, respectively. U.S. equities drew additional momentum from robust quarterly earnings by major banks. JPMorgan Chase reported record profits, surpassing expectations, while Citigroup and Goldman Sachs followed suit, reinforcing investors’ faith in corporate resilience.
While lower inflation and stock market gains stole the spotlight, broader challenges remain. German pharmaceutical giant Bayer faced a significant setback after being ordered to pay $100 million as part of lawsuits linked to harmful chemical exposures at a Washington school. Meanwhile, Japan faced its own economic tremors as its 10-year bond yield spiked to 1.239%, a 14-year high. These global developments serve as a reminder that risks are never far from the surface.
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