Optimism Over Fed Rate Cuts Fuels European Rally as Labor Market Signals Shift

European equities staged a compelling Friday finish, with broad-based gains driven by expectations that the Federal Reserve may deliver further rate reductions following softer U.S. employment readings. Market participants interpreted December’s labor report as signaling the beginning of a more accommodative monetary policy stance.

Employment Data Signals Fresh Momentum for Rate Cut Narrative

The U.S. employment landscape showed unexpected restraint in December, with non-farm payroll additions reaching just 50,000—a significant shortfall from the anticipated 60,000 and well below November’s downwardly adjusted 56,000. This cooling in job creation near consensus estimates has reignited discussions about the Federal Reserve’s rate path, prompting investors to recalibrate their outlook for borrowing costs.

Meanwhile, the unemployment rate edged down to 4.4% in December from 4.5% the previous month, though the decline was more modest than historical patterns might suggest. On the Canadian front, employment growth slowed considerably, with Statistics Canada reporting just 8,200 net additions in December 2025, a sharp deceleration from the cumulative 181,000 positions added between September and November. The Canadian jobless rate ticked up to 6.8%, exceeding market expectations of 6.6%.

Pan-European Benchmarks Post Solid Gains

The Stoxx 600 index advanced 0.97%, reflecting broad sentiment improvement across the continent. Regional heavyweights delivered mixed but predominantly positive results: the DAX gained 0.53%, the CAC 40 surged 1.44%, and the FTSE 100 captured 0.8%. Switzerland’s SMI added 0.53%. Most European markets participated in the uptrend, with Belgium, Denmark, Finland, Greece, Iceland, Ireland, Netherlands, Norway, Poland, Portugal, Russia, Sweden and Turkey posting advances. Austria, the Czech Republic and Spain remained essentially flat.

Stock-Specific Movements Define Market Leadership

In the U.K., mining and energy sectors emerged as star performers. Glencore’s 9.6% surge reflected renewed interest in the sector following confirmed preliminary merger discussions with Rio Tinto, though Rio Tinto itself declined 3%. Antofagasta climbed 4.1%, while Anglo American and Frsenillo posted gains near 2%. Endeavour Mining bucked the trend with a roughly 5% decline.

Energy majors Shell and BP strengthened 3.1% and 2.4%, respectively, as crude market sentiment improved. Retail, industrial and financial names including Auto Trader, Spirax, Diploma, Marks & Spencer, Centrica, Schroders, Experian, and Ashtead advanced between 2% and 4%. Conversely, Sainsbury plunged over 5% following disappointing Argos chain sales during the critical Christmas trading period. Vodafone, IAG, Tesco, Aviva, Kingfisher and Haleon also recorded notable declines.

In Germany, technology and industrial names dominated gainers. Infineon, SAP, Rheinmetall, Beiersdorf, Henkel and Volkswagen climbed 2-3%, while Siemens Energy, Scout24 and BASF added 1.7-2%. Fresenius Medical Care benefited from announcing the continuation of its €1 billion buyback initiative, with a second €415 million tranche scheduled through May 8. Siemens and Brenntag posted robust gains. On the downside, MTU Aero Engines, Bayer, Allianz and Commerzbank shed 2-2.1%, while Munich RE, Fresenius and Hannover Rueck retreated notably.

French equities showcased impressive strength, with L’Oreal surging over 6% and BNP Paribas jumping 5.6%. Luxury conglomerate Hermes International gained 4.1%, while TotalEnergies, Kering, LVMH, STMicroElectronics, Saint Gobain, Publicis Groupe, Capgemini, Dassault Systemes, Air Liquide, Sanofi, Legrand and EssilorLuxottica all posted significant advances. Decliners included Orange, Vinci, Bouygues, Societe Generale, Edenred, AXA, Safran, Accor and Veolia Environment, each retreating 1-3%.

Economic Data Delivers Mixed Signals Across Europe

Germany’s industrial sector displayed unexpected resilience despite export headwinds. November industrial production climbed 0.8% month-on-month, confounding forecasts of a 0.6% contraction and suggesting underlying production strength, particularly in automotive and machinery manufacturing. Year-on-year, output grew 0.8%.

The export picture proved less encouraging, with shipments declining 2.5%—the steepest monthly drop since May 2024—reversing October’s modest 0.3% expansion. Imports, however, rebounded more-than-expected by 0.8%, compared to October’s 1.5% decline and consensus expectations of 0.2%. The trade surplus consequently narrowed to EUR 13.1 billion from EUR 17.2 billion.

French industrial production contracted 0.1% month-on-month in November, following a 0.2% gain previously, though three-month output expanded 1.8%. Year-over-year production increased 0.3%. Household consumption declined an unexpected 0.3% in November, disappointing forecasts of a 0.2% advance and reversing October’s revised 0.5% growth—a development signaling potential softening in consumer momentum heading into the new year.