European Markets Rebound, Fuelling Bond Surge

European stock markets rebounded strongly after facing losses earlier in the week, following the release of U.S. Consumer Price Index (CPI) data. Despite opening lower on Thursday, with France's CAC 40, Germany's DAX, and London's FTSE 100 all in the red, European indices managed to rally. 

The Euro Stoxx 600 rose by 1.01%, the DAX gained 1.49%, and the CAC 40 increased by 0.97% on Wednesday, indicating a strong recovery driven by tech stocks reacting to cooler-than-expected inflation data from the U.S. This resurgence suggests that the decline offered a buying opportunity for investors, especially with central banks indicating a shift towards rate cuts.

The Federal Reserve maintained its benchmark interest rate between 5.25% and 5.5% after U.S. inflation data suggested slower price increases. The Fed’s projections show expectations for one rate cut this year and four in 2025, reinforcing a trend towards easing monetary policy. 

Meanwhile, the European Central Bank (ECB) reduced its interest rate for the first time since 2019, potentially signaling an end to its current rate hike cycle. Similarly, the Bank of Canada also lowered its policy rate amid concerns over an economic slowdown, and the Swiss National Bank had cut rates in March.

Bond markets responded positively to these developments, with yields on the U.S. 10-year government bond dropping by 10 basis points to 4.31%. This decline was mirrored in Europe, where the UK’s 10-year gilt fell by 14 basis points to 4.13%, and yields on German, French, and Italian bonds decreased by 9 to 15 basis points.