European markets closed higher on Thursday, driven by gains in healthcare and mining stocks, even as inflation worries and fiscal concerns weighed on sentiment. The pan-European Stoxx 600 climbed 0.42%, while the FTSE 100 and CAC 40 followed suit with robust performances. UK bond yields soared to multi-year highs on Thursday, reflecting mounting concerns over the country’s fiscal outlook and fears of stagflation. The 10-year gilt yield climbed as high as 4.93%, marking its highest level since 2008, before settling at 4.84%, while the 30-year gilt yield breached 5.3%, levels last seen in 2007. This spike highlights growing uncertainty about the sustainability of government borrowing and economic growth prospects. Despite these challenges, European equities ended the day in positive territory, with the pan-European Stoxx 600 rising 0.42%, supported by gains in healthcare and mining stocks. However, UK retail stocks continued to suffer sharp losses amid disappointing updates, adding to current concerns. Meanwhile, US markets were closed for a national day of mourning. 

Key Takeaways:

  • European Stocks End Higher Despite Inflation Worries: The pan-European Stoxx 600 index climbed 0.42% to close in positive territory, rebounding after a weak start. The FTSE 100 outperformed with a gain of 68.66 points, or 0.83%, to close at 8,319.69. France’s CAC 40 rose 43 points, or 0.57%, while Italy’s FTSE MIB increased by 225 points, or 0.64%. Gains were driven by a rally in mining stocks, which rose 1.47%, and healthcare stocks, which added 1%, offsetting a 0.84% decline in retail stocks. 
  • Eurozone Economic Data Mixed Amid Recovery Hopes: German exports grew by 2.1% in November, beating expectations of a 2.0% rise, with notable increases in exports to the US (+14.5%) and UK (+8.6%). However, exports to China declined by 4.2%. German industrial production also rose by 1.5%, triple the expected 0.5% increase. Despite these gains, retail sales in the Eurozone grew less than expected, with analysts warning that hopes for a robust recovery remain misplaced. Meanwhile, German 10-year bond yields retreated slightly to 2.528% after touching multi-month highs earlier in the session. 
  • Asian Markets Struggle Amid Mixed Economic Signals: Japan’s Nikkei 225 dropped 0.94% to 39,605.09, while the Topix fell 1.23% to 2,735.92, following weaker-than-expected wage growth data. Real wages in Japan rose only 0.4% year-on-year, offering little relief to investors already worried about potential Bank of Japan rate hikes. Meanwhile, China’s CSI 300 index fell 0.25% to close at 3,779.88, weighed down by entrenched disinflationary trends, while the Hang Seng in Hong Kong dipped 0.13%. South Korea’s Kospi edged up 0.13% to 2,521.90, while the small-cap Kosdaq rose 0.54% to 723.52. Australia’s S&P/ASX 200 declined 0.24% to 8,329.20, and the Indian rupee extended its decline against the US Dollar as speculation of a Reserve Bank of India rate cut added to downward pressure. The rupee is currently overvalued by 8% compared to its trading peers. 
  • Oil Prices Rise Amid Cold Weather Demand: Oil prices saw a 1% increase on Thursday, driven by winter fuel demand in the US and Europe. Brent crude’s front-month contract premium over its six-month contract widened to its highest level since August, reflecting tightening supply concerns. US ultra-low sulphur diesel futures traded at $2.38 a gallon, their highest since October, as frigid temperatures spurred increased consumption for heating oil and propane.

FX Today:

  • EUR/USD Revisits 2023 Lows Amid Weak Sentiment: The EUR/USD pair continued its slide, closing at 1.0303, edging closer to its December 2023 low of 1.0250, a level that has served as crucial support. The pair has been in a pronounced downtrend since peaking at 1.1270 in July 2023, driven by a combination of global economic uncertainty and relative US Dollar strength. Technically, EUR/USD remains below key moving averages, including the 50-day SMA at 1.0526, the 100-day SMA at 1.0778, and the 200-day SMA at 1.0799, reinforcing its bearish momentum. Immediate resistance is found at 1.0400, where the pair previously faltered in December. A sustained break below 1.0250 could open the door for further declines toward 1.0150, a level not seen since early 2017. 
  • GBP/USD Hits Fresh 2023 Lows as Fiscal Concerns Mount: The British Pound slumped against the US Dollar, closing at 1.2315, marking its lowest level since February 2023. The decline was exacerbated by rising UK bond yields, with the 10-year gilt yield hitting 4.925% before easing to 4.795%, its highest levels since 2008. This surge in yields reflects heightened investor concerns over the UK’s fiscal outlook, exacerbated by fears of stagflation—a combination of stagnant growth and persistent inflation. The pair remains firmly entrenched in a bearish trend, having broken below its 50-day SMA at 1.2668, 100-day SMA at 1.2905, and 200-day SMA at 1.2805 in recent months. Immediate support lies at 1.2300, a psychologically significant level last tested in November 2022. If this level gives way, the pair could target 1.2100, last seen during the height of pandemic-related volatility in March 2020. On the upside, resistance is pegged at 1.2500, but any recovery would require a break back above the 50-day SMA at 1.2660 to change the bearish outlook.
  • EUR/GBP Edges Higher on Pound Weakness: EUR/GBP rose 0.28% to close at 0.8366, benefiting from continued weakness in the Pound as UK fiscal concerns weighed on sentiment. The pair remains above its multi-year low of 0.8200, recorded in September 2024, and has seen some recovery attempts amid broader bearish pressure since peaking near 0.8900 in early 2023. Technically, EUR/GBP faces strong resistance at 0.8400, which coincides with the 100-day SMA at 0.8347. Beyond this, the 200-day SMA at 0.8427 presents another significant hurdle, as it has repeatedly acted as a ceiling throughout 2024. On the downside, immediate support is located at 0.8300, with a break below this level potentially exposing the September low of 0.8200. A further decline could target 0.8100, last seen in 2016 during Brexit-related volatility. For bulls, a sustained break above 0.8400 could pave the way for a recovery toward the 0.8500 psychological level.
  • USD/JPY Remains Near Multi-Decade Highs: USD/JPY closed at 158.08, consolidating just below its multi-decade high of 159.50, a level last seen in 1990. The pair has been in a strong uptrend throughout 2023, fuelled by persistent US Dollar strength and a divergence in monetary policy expectations between the Federal Reserve and the Bank of Japan. Technically, immediate support lies at 157.00, with the 50-day SMA at 154.17 providing a critical dynamic floor. On the upside, resistance remains firmly entrenched at 160.00, a psychological barrier that has been tested multiple times without a decisive breakout. Momentum indicators such as RSI suggest overbought conditions, increasing the likelihood of a short-term pullback. However, a break above 160.00 could open the door for further upside, while failure to clear this level may lead to a retracement toward 155.00, offering bulls another buying opportunity.
  • Gold Surges Near Key Resistance Amid Safe-Haven Demand: Gold prices climbed to $2,669, approaching the October 2024 high of $2,720, as heightened uncertainty drove safe-haven demand. The precious metal continues to see strong bullish momentum, with immediate resistance at $2,700, a critical psychological and technical level. A decisive break above this level could propel gold toward $2,800, with $2,720 serving as the first milestone. On the downside, support is located at $2,646, aligning with the 50-day SMA, followed by $2,630 as a secondary level. 

Market Movers:

  • Greggs Tumbles on Weak Sales Performance: Shares of Greggs, the UK-based on-the-go food retailer, plunged 15.8% on Thursday after the company reported sales figures that fell short of analyst expectations. 
  • B&M Cuts Profit Forecast, Drops 8.5%: B&M European Value Retail saw its shares slide 8.5% after the company slashed the upper end of its annual profit forecast. This move came amid disappointing holiday sales, sparking concerns about the resilience of the UK consumer market. 
  • Marks & Spencer Declines on Lacklustre Update: Marks & Spencer suffered an 8.4% drop in share price following a lacklustre Christmas trading update. The company’s results fell short of investor expectations, reflecting broader struggles in the UK retail landscape. 
  • Bavarian Nordic Rises on Share Buy-Back Program: Danish vaccine maker Bavarian Nordic climbed 3.8% after announcing the initiation of a share buy-back program valued at up to DKK 150 million ($20.7 million). 
  • Ambu Gains on Analyst Upgrade: Shares of Ambu surged 5.6% after Carnegie upgraded its rating to “buy” from “hold.” The positive sentiment surrounding the stock helped drive gains in the healthcare sector, which was one of the best-performing segments on Thursday.
  • Quantum Computing Stocks Plummet on Industry Outlook: Quantum computing companies saw dramatic losses after Nvidia CEO Jensen Huang commented that the technology remains decades away from widespread implementation. Shares of Rigetti Computing fell over 45%, D-Wave Quantum dropped 36%, Quantum Computing Inc. plunged 43%, and IonQ slid 39%, reflecting widespread pessimism in the sector.

As the trading week nears its close, the European stocks find support in healthcare and mining sectors despite ongoing inflation concerns and a challenging retail landscape. The FTSE 100 and CAC 40 posted solid gains, while UK retail stocks and bonds faced significant pressure amid fiscal worries. Asian markets delivered mixed results, with China grappling with entrenched disinflation and Japan leading regional losses. Meanwhile, oil prices rose on heightened winter demand, and gold approached key resistance levels as investors sought safe-haven assets ahead of critical US labour market data. With geopolitical uncertainties and economic signals diverging, all eyes remain on how fiscal and monetary policies will shape the markets in the days ahead.