A fragile sense of calm has returned to European markets on Wednesday, with stocks staging a tentative rebound from a brutal sell-off that was driven by deep-seated fears over the region’s fiscal health.
This quiet recovery is being led by a stunning display of defiance from the luxury sector, but the ghosts of yesterday’s bond market rout still linger, casting a long and anxious shadow over the session.
In the opening hour of trade, the pan-European Stoxx 600 was 0.1 percent higher, a modest gain that nonetheless stands in stark contrast to the previous day’s turmoil. Most sectors and all major bourses are posting gains, a sign that the market is, for now, finding its footing.
A watchmaker’s triumph in a tariff storm
The day’s undisputed star is Watches of Switzerland, whose shares have skyrocketed 8.3 percent in early trade.
The surge came after the company issued a confident trading update and received a crucial stock upgrade from Deutsche Bank, a powerful combination that has sent a jolt of optimism through a nervous market.
In a remarkable show of resilience, the company confirmed it was on track to deliver its results in line with expectations, masterfully navigating the crushing US tariffs that have been levied on its products.
“We have seen consistently strong trading throughout the period, particularly in the US despite the announcement of increased tariffs on Swiss imports,” the company said in its trading update.
It added that it did not anticipate a material impact from the tariffs in the first half, as its brand partners had strategically increased inventories ahead of the levies.
This bullish outlook was validated by Deutsche Bank, which upgraded the stock to a “buy.”
“We believe the downside risk to WOSG earnings driven by US import tariffs is much more contained than the shares are reflecting,” analyst Alison Lygo said in a note.
The lingering ghost of the bond rout
This pocket of corporate strength, however, cannot entirely erase the memory of Tuesday’s turmoil.
The previous session’s sell-off was triggered by a dramatic spike in government bond yields, a clear sign of growing investor anxiety about the fiscal stability of Europe’s major economies.
The UK’s 30-year bond yield surged to its highest level since 1998 as the market braced for a contentious Autumn Budget.
At the same time, France’s 30-year yield hit its highest point since 2009, a direct reaction to a looming no-confidence vote that could topple the government over a fierce budget dispute.
This is not just a European problem.
The sell-off is part of a global phenomenon, exacerbated by a bombshell US court ruling that President Donald Trump’s global trade duties are illegal.
The decision raises the unsettling prospect of the US government having to repay billions in collected duties, putting even more pressure on an already stressed fiscal situation and sending a ripple of fear through the entire global bond market.
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