Published by Global Banking & Finance Review®
Posted on January 10, 2025
3 min readLast updated: January 27, 2026
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European shares fell sharply as bond yields rose, influenced by a strong US jobs report and inflation concerns, affecting market sentiment.
By Shashwat Chauhan, Nikhil Sharma and Pranav Kashyap
(Reuters) -European shares on Friday suffered their steepest decline in three weeks after a robust U.S. jobs report stoked fresh inflation fears and solidified expectations of a cautious approach to rate cuts by the Federal Reserve.
The pan-European STOXX 600 dropped 0.8%, its most significant fall since Dec. 20, despite clinching its strongest weekly performance in a month.
Adding to the market's woes, European government bond yields climbed, with Germany's 10-year bund yield reaching its highest point since July 2024. The surge in yields dampened investor sentiment, impacting sectors such as utilities, which dropped by 2.3% due to their bond-like characteristics. [GVD/EUR]
The rate-sensitive real estate sector also felt the pressure, losing 1.1%.
The unexpected acceleration in U.S. job growth, coupled with a drop in the unemployment rate to 4.1%, signalled a robust end to the year for the U.S. labour market - leaving Fed policymakers to puzzle over the need for further interest-rate cuts in a still-strong economy.
Traders now anticipate that the Federal Reserve will cut rates in June and then hold them for the rest of the year, as indicated by CME's FedWatch Tool.
This anticipation of a cautious stance by the Fed was further cemented by the latest data. Wall Street also opened lower. [.N]
Earlier this week, European equities and global bond markets had already taken a hit, driven by speculation that U.S. President-elect Donald Trump might declare a national economic emergency to introduce new tariffs. This uncertainty set ripples through the markets, leading to a wave of sell-offs.
Investors also received a fresh batch of inflation and economic data from the euro zone. The mixed results painted an uncertain picture, yet they were sufficient to sustain expectations that the European Central Bank will cut rates in its January meeting.
Deutsche Bank analysts noted the volatility in data and said the ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB-POLICY-CENTENO-a52f21b9-8975-4dc5-9a21-8c5e8267aa43>ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB-POLICY-3fdc7763-f2c0-4c30-b494-8614852eaf43>ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB-POLICY-CENTENO-a52f21b9-8975-4dc5-9a21-8c5e8267aa43>ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB was "unlikely to read too much" into it.
"Overall, the lack of any major downside surprise in the (euro zone) inflation print does little to change the view that further gradual easing at the January meeting is the appropriate baseline action," they said.
In the session, the automobile sector rose 0.5%, driven by a 3.7% gain in Mercedes-Benz after its fourth quarter sales results.
The food and beverages sub-index was among the top losers, with alcohol manufacturers Pernod Ricard, DIAGEO-DIVESTITURE-af84b6c0-60a9-429f-9942-1385ea2cae81>Diageo and Anheuser-Busch Inbev leading losses.
Ambu A/S jumped 17.1% to the top of the pan-European index after the Danish medical devices maker posted preliminary first-quarter results and hiked its full-year outlook.
(Reporting by Shashwat Chauhan, Nikhil Sharma and Pranav Kashyap in Bengaluru; Editing by Sherry Jacob-Phillips, Varun H K and Alison Williams)
European shares declined due to a robust U.S. jobs report that raised inflation fears and led to a cautious approach from investors.
European government bond yields climbed, with Germany's 10-year bund yield reaching its highest since July 2024, which dampened investor sentiment.
Traders anticipate that the Federal Reserve will cut rates in June and maintain them for the rest of the year, according to CME's FedWatch Tool.
The rate-sensitive real estate sector lost 1.1%, while the automobile sector rose 0.5% due to strong sales results from Mercedes-Benz.
Despite the decline on Friday, European equities had their strongest weekly performance in a month earlier in the week.
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