European stock markets surged this week, outperforming their global counterparts, thanks to strong gains in the energy sector.
While Wall Street struggled under the weight of rising government bond yields, European equities climbed, buoyed by higher energy and metal prices. In contrast, currency markets told a different story, as the US dollar strengthened against other G-10 currencies. The euro fell to a two-year low against the dollar, and the British pound dropped to its lowest level since November 2023 following turbulence in UK government bonds.
Major European indices saw significant weekly gains: the Stoxx 600 index rose 1.51%, Germany’s DAX climbed 2.06%, France’s CAC 40 jumped 2.86%, and the UK’s FTSE 100 gained 1.16%.
The energy sector led the charge, with a 5% weekly increase fueled by surging oil and gas prices. Notable performers included BP, up 7%, Shell, rising 5.5%, and TotalEnergies, advancing 4.9%. The rally followed a sharp rise in crude oil and natural gas prices, driven by higher winter demand and geopolitical tensions.
Technology and financial sectors also shone, with ASML shares up 8.7% and SAP gaining 3.8% over the week. Banking stocks were bolstered by UBS, which surged nearly 10% to a 16-year high after reports of a significant settlement with the US Justice Department related to Credit Suisse’s past activities.
Economic data painted a mixed picture. Eurozone inflation climbed to 2.4% year-on-year in December, up slightly from 2.2% the previous month, with core inflation steady at 2.7%. These figures reinforced expectations of a 25-basis-point rate cut by the European Central Bank in January.
In the UK, bond markets experienced turmoil. The 10-year gilt yield hit its highest level since 2008, spurred by fears of entrenched inflation. The Labour government’s £26 billion (€31 billion) budget tax hike has prompted concerns that businesses will pass on higher costs to consumers, exacerbating inflationary pressures. Consequently, UK assets, including government bonds and the pound, faced a sharp sell-off.
