European equity markets rallied on Monday, January 13, 2025, buoyed by a pause in last week’s punishing bond sell-off that had rattled global markets. U.S. stock futures also edged higher, signaling cautious optimism as yields retreated from recent highs and investors recalibrated expectations around monetary policy.
The pan-European Stoxx 600 index advanced 1.1% in morning trading, led by gains in financials and industrials. Germany’s DAX rose 1.3%, while France’s CAC 40 added 1.2%. London’s FTSE 100 was up 0.9%, supported by energy shares and a softer British pound.
Across the Atlantic, futures tied to the S&P 500 and Nasdaq 100 were up 0.5% and 0.7% respectively in early pre-market action, while Dow Jones Industrial Average futures climbed 0.4%. The rebound follows last week’s sharp losses across equities, triggered by a disorderly surge in bond yields as investors grew jittery over global central banks’ rate trajectories.
Yields on 10-year U.S. Treasuries, which spiked to 4.62% last week — their highest level since November — eased to 4.47% by Monday. The eurozone’s benchmark 10-year German Bund yield also pulled back, falling 9 basis points to 2.18%. Bond prices move inversely to yields.
Markets found temporary relief as institutional buyers returned to scoop up government debt at more attractive levels, helping to stabilize the rout that had sparked volatility and tightened financial conditions globally.
“The recent bond carnage had threatened to spill over into broader risk assets, but today’s rebound reflects technical oversold conditions and some recalibration of Fed expectations,” said Amrita Dhillon, European Markets Strategist at Investra Capital.
Investor sentiment had been shaken by persistent inflation data and hawkish commentary from U.S. Federal Reserve officials, prompting concerns that rates may remain elevated for longer than previously hoped. While the Fed has paused hikes since mid-2024, Fed Chair Jerome Powell’s recent remarks emphasized the central bank’s commitment to data dependency and its “higher-for-longer” policy stance.
Meanwhile, eurozone inflation figures due later this week will be closely watched, as the European Central Bank (ECB) navigates its own rate path. Although headline inflation in the euro area has cooled to 2.7%, underlying pressures — particularly in services — remain sticky. ECB President Christine Lagarde is set to speak on Wednesday, with markets listening for any clues about potential rate adjustments in March.
“Markets are entering a more fragile phase where monetary policy signaling will become increasingly nuanced,” said Louis Carter, Chief Economist at Zurich Holdings. “The bond market is acting as the main barometer of investor anxiety right now.”
Despite Monday’s gains, analysts warned that volatility could return swiftly, especially if economic data challenges the narrative of a soft landing or reignites inflation fears. The upcoming U.S. CPI data, due on Wednesday, will be a critical test. Economists polled by Bloomberg expect headline inflation to tick slightly higher to 3.4% year-over-year, up from 3.2% in December.
Tech shares, which bore the brunt of last week’s sell-off due to their sensitivity to interest rate movements, showed signs of life. Semiconductor and software firms listed in Frankfurt and Amsterdam led gains, while in the U.S., Nvidia and Apple rose in pre-market trade.
Energy stocks also advanced, supported by firmer crude prices. Brent crude rose 1.6% to $83.10 a barrel amid fresh tensions in the Middle East and concerns over Red Sea shipping disruptions. Traders remain wary of potential supply shocks and their knock-on effects on inflation and central bank policy.
While Monday’s bounce provided some respite, many strategists remain cautious.
“We’re still in a yield-driven market, and until we see a sustained decline in inflation or a clear pivot from the Fed, equities are likely to trade in a choppy range,” said Marija Vukovic, Global Asset Allocation Lead at Helix Partners.
U.S. corporate earnings season, which kicks off this week with reports from major banks including JPMorgan Chase and Citigroup, may also offer fresh catalysts. Investors will be watching closely for forward guidance, particularly around credit quality, consumer spending, and business investment.
In currency markets, the euro rose 0.3% against the dollar to $1.094, while the British pound slipped 0.2% as traders bet on a more dovish Bank of England later this quarter. The dollar index, which tracks the greenback against six major peers, edged lower to 102.8.
The moderation in yields also brought relief to emerging market assets, with the MSCI Emerging Markets index climbing 0.9%, boosted by gains in South Korean and Indian equities. Bond inflows into Asia picked up modestly after two weeks of outflows, according to data from EPFR.
As the global bond market finds its footing, equity traders are cautiously re-engaging — though few expect smooth sailing in the weeks ahead. For now, the easing in yields has temporarily lifted risk sentiment, but the Fed’s next moves — and how markets interpret them — will remain the dominant driver.
Disclaimer: This article is for informational purposes only and does not constitute financial advice.
