European markets edged higher on Tuesday, buoyed by a moderation in the recent bond market sell-off. Investors remain watchful, balancing optimism from easing fears of rate hikes with caution ahead of crucial U.S. inflation data and the commencement of U.S. President-elect Donald Trump’s second term next week.
European equities gained ground, with the STOXX 600 index up 0.48% after Monday’s decline, which was spurred by rising global bond yields following robust U.S. jobs data. Germany’s DAX climbed 0.67%, and the FTSE 100 inched up 0.1%, reflecting measured optimism among investors. Meanwhile, U.S. futures saw recovery, with Nasdaq 100 futures up 0.7% and S&P 500 futures rising 0.51%.
Analysts highlighted geopolitical developments, including potential adjustments to U.S. tariff strategies, as a contributing factor to the positive momentum. Reports that Trump’s aides are considering incremental tariff increases to bolster U.S. negotiating power without triggering inflationary spikes have tempered concerns about global trade impacts.
The market’s focus now shifts to U.S. inflation data due Wednesday. A higher-than-expected increase in the core inflation figure could dash hopes for further rate cuts, a scenario prompting caution among investors. Benchmark 10-year U.S. Treasury yields retreated slightly to 4.78%, easing from Monday’s 4.805%, a level not seen since November 2023.
Energy markets steadied following a surge in oil prices driven by heightened U.S. sanctions on Russia. Brent crude traded at $80.80 per barrel, marking a slight dip after reaching four-month highs. In currency markets, the euro regained some ground, rising 0.15% to $1.0262 after hitting a two-year low on Monday. The yen softened to 157.84 per dollar, moving away from last week’s six-month low. The dollar index also edged higher, underscoring continued demand for the greenback.
As the U.S. earnings season kicks off on Wednesday with major banks like JPMorgan Chase and Citigroup reporting results, investors are weighing the trade-off between strong corporate earnings from a robust economy and the desire for lower inflation. This balancing act reflects broader uncertainty in global markets as economic conditions and policy decisions evolve.
European markets, bolstered by cautious optimism, will remain tuned to these unfolding dynamics as key economic data and policy signals emerge in the coming days.
JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
