Weekly recap: Stock market rally stalls amid bond market jitters

The rally on the European stock markets stalled, with a flat weekly performance, due to rising global government bond yields.

The US CPI data for November showed that inflation rose for the second consecutive month, reinforcing expectations for a gradual rate cut by the Federal Reserve.

The European Central Bank delivered a 25 basis point rate cut for the third straight time this year but emphasised continuous restrictive monetary policy. However, traders see an accelerating easing pace, predicting a 125 basis-point cut in 2025. 

Major benchmark government bond yields in the Eurozone jumped on Thursday following the ECB’s hawkish stance, which pressured equity valuations.

The German 10-year government bond yield surged 8 basis points to 2.2%, its the highest in two weeks.

Meanwhile, yields of US government bonds resumed rallying this week, rising for the past four trading days. The US dollar strengthened further, sending the euro down to a two-week low against the greenback.

Additionally, the Bank of Canada (BOC) and the Swiss National Bank (SNB) both cut the interest rate by 50 basis points. The BOC signalled a slowdown in the easing cycle, while the SNB remained dovish as markets expected a quarter percentage cut by the bank. 

In commodities, both gold and crude oil rose following China’s vow to adopt a “proactive fiscal policy,” despite a pullback on Thursday. 

Bitcoin hovered around the $100,000 threshold as the Trump-led rally continued. 

Europe

Major European benchmarks were slightly lower this week, with the pan-European Stoxx 600 index declining 0.24%, France’s CAC 40 slipping by 0.08%, Germany’s DAX fell 0.2%, and the UK’s FTSE 100 gained 0.04%.

Political instability and the ECB’s rate cut were the focus of markets. However, the regional market trends continued to mirror Wall Street movements. 

Despite broad downside pressure, European consumer stocks experienced a strong rally amid China’s stimulus hopes.

On a weekly performance, LVMH rose 6.6%, Hermes was up 3.8%, L’oreal climbed 3.3%, and Christian Dior rose 5.9%. On the other hand, the energy and industrial sectors were under pressure due to weak oil and industrial metal prices.

Safran slumped 9%, Rolls-Royce fell 3.3%, and Shell slipped 1% over the past five trading days. 

On the economic front, Germany’s November final CPI was confirmed at a 2.2% increase year on year, up from 2% in the previous month.

The data may encourage the ECB to stay restrictive on its monetary policy.

However, global factors, particularly Trump’s potential tariffs will likely impact the Eurozone’s growth outlook and promote faster rate cuts.

Wall Street

The US stock markets are mixed this week. On a weekly basis, the Dow Jones Industrial Average fell 1.63%, the S&P 500 slid 0.64%, and the Nasdaq Composite climbed 0.23%.

While the post-election rally continued in technology shares, most other sectors were in the red. 

In the S&P 500, nine out of eleven sectors were in the red, with the interest-rate sensitive sector, utilities, leading losses, down 3.4% weekly.

The energy sector was the second biggest loser, sliding 3%, followed by Healthcare and industrial, both down 2.3% from last week.

In sharp contrast, the growth sectors – consumer discretionary and communication services, comprising big technology shares such as Tesla and Alphabet, rose 3.5% and 2.4% respectively over the past five trading days. 

Tesla’s share price jumped 13% weekly after hitting a record high on Wednesday, despite a slight pullback on Thursday. The stock is up 69% since Trump won the US election due to CEO Elon Musk’s support for his presidential campaign.

Alphabet’s stocks jumped 11% weekly after Google unveiled the most advanced quantum computing chip, Willow. 

The US November headline CPI came in at 2.7% year on year, up from 2.6% in the previous month, and in line with expectations.

The data, however, did not alter expectations for the Fed to deliver a 25 basis point rate cut next week.

However, markets see the pace as a more gradual pace than previously projected. This sent the US 10-year government bond yield climbing to 4.33% on Thursday, the highest since 25 November. 

China

Chinese stock markets rallied amid further stimulus policies in 2025. At the annual Politburo and economic planning conference, top Chinese officials signalled to adopt a “proactive fiscal policy and moderately loose monetary policy.”

These terms have not been used since the global financial crisis in 2008. Markets highly expect the Chinese government to deliver more rate cuts and more accommodative fiscal policies in the coming year.

In contrast to other markets, Chinese benchmarks all posted weekly gains, with the China A50 up 1.8%, and the Hang Seng Index rising 1.6%.