Fed Rate Cut Expectations Drive European Stocks Higher After Softer U.S. Jobs Data

The prospect of additional interest rate cuts from the Federal Reserve has buoyed European markets into the weekend, with investors digesting mixed employment signals across the Atlantic.

U.S. Jobs Data Signals Slower Momentum

The U.S. Labor Department’s December employment report delivered a key talking point for rate cut advocates. Non-farm payroll employment climbed just 50,000 jobs last month, trailing economist expectations of 60,000 and notably weaker than November’s downwardly revised 56,000 gains. The unemployment rate ticked down to 4.4% from 4.5%, undercutting prior expectations of a hold at 4.5%. This softer jobs data has reignited optimism that the Fed may have room to ease policy further.

North of the border, Canada’s labor market showed marginally better dynamics. The Canadian economy added 8,200 positions in December following three consecutive months of gains totaling 181,000. However, Canada’s unemployment rate climbed to 6.8%, rising from 6.5% and exceeding the 6.6% consensus forecast. The divergence between U.S. and Canadian employment trends highlighted the uneven global economic backdrop.

European Equities Capitalize on Rate Cut Optimism

The combined effect of tepid U.S. jobs data and Fed expectations propelled European equity benchmarks higher. The broad Stoxx 600 index advanced 0.97%, while major bourses posted solid gains: the FTSE 100 in London jumped 0.8%, Germany’s DAX moved up 0.53%, and France’s CAC 40 surged 1.44%. Switzerland’s SMI added 0.53%. Across the continent, markets in Belgium, Denmark, Finland, Greece, Iceland, Ireland, the Netherlands, Norway, Poland, Portugal, Russia, Sweden and Turkey all closed in positive territory, while Austria, the Czech Republic and Spain remained flat.

Sector Standouts and Individual Movers

Mining and commodities led the charge in London. Glencore surged 9.6% after confirming preliminary merger discussions with Rio Tinto, which itself declined 3% despite the strategic developments. Antofagasta climbed 4.1%, Anglo American gained 2.7%, and Fresnillo rose nearly 2%. Energy stocks Shell and BP posted 3.1% and 2.4% gains respectively. Endeavour Mining bucked the trend, falling roughly 5%.

Retail and consumer names added solid increments, with Auto Trader, Spirax-Sarco, Diploma, Marks & Spencer, Centrica, Schroders, Experian, SSE, Coca-Cola Europacific Partners and Ashtead each rising 2-4%. Sainsbury’s sank over 5% after reporting Christmas quarter sales declines at its Argos chain, while Vodafone, IAG, Tesco, Aviva, Kingfisher and Haleon also retreated notably.

In Germany, technology and industrial names dominated gainers: Infineon, SAP, Rheinmetall, Beiersdorf, Henkel and Volkswagen each posted 2-3% advances. Siemens Energy, Scout24 and BASF climbed 1.7-2%. Fresenius Medical Care jumped following news of a €415 million share buyback tranche commencing January 12. Siemens and Brenntag also posted strong performances, while MTU Aero Engines, Bayer, Allianz and Commerzbank slipped 2-2.1%.

French luxury and financials led Paris higher. L’Oreal climbed over 6%, BNP Paribas surged 5.6%, and Hermès International gained 4.1%. TotalEnergies, Kering, LVMH, STMicroelectronics, Saint-Gobain, Publicis, Capgemini, Dassault Systèmes, Air Liquide, Sanofi, Legrand and EssilorLuxottica all posted impressive advances. Conversely, Orange, Vinci, Bouygues, Société Générale, Edenred, AXA, Safran, Accor and Veolia Environment declined 1-3%.

European Economic Data: Manufacturing Resilience and Divergence

Germany’s industrial production expanded 0.8% month-on-month in November, defying economist forecasts of a 0.6% contraction. The automotive and machinery sectors drove growth, though the November gain fell short of October’s 2% surge. Year-on-year, output rose 0.8%.

Exports painted a grimmer picture, with German shipments declining 2.5% in November—the steepest drop since May 2024—versus flat expectations. October had posted a 0.3% uptick. Imports rebounded 0.8%, exceeding the expected 0.2% gain and recovering from October’s 1.5% slide. The trade balance settled at a EUR 13.1 billion surplus, down from EUR 17.2 billion the prior month.

France’s manufacturing sector showed continued sluggishness, with industrial production falling 0.1% month-on-month in November 2025 after October’s 0.2% increase. Over three months, output gained 1.8%, while annual growth reached 0.3%.

On the consumption front, French households surprised to the downside, with household spending contracting 0.3% month-on-month in November versus expectations of a 0.2% rise and reversing October’s upwardly revised 0.5% growth. This weakness suggests consumers remain cautious heading into 2025.