European stocks bounce at the open as yields retreat and Wall Street's late rally sets the tone

Equities across Europe opened firmly higher, helped by a pullback in government bond yields that gives stocks some relief near the end of the trading week. There is also an element of making up ground after Wall Street, where US benchmarks pared a slice of their losses late in the prior session. That bounce occurred after European bourses had already shut, leaving the region's main indexes in negative territory.

Early moves are broad-based and firm:

• Eurostoxx +0.8%
• Germany DAX +0.9%
• France CAC 40 +0.9%
• UK FTSE +0.8%
• Spain IBEX +0.9%
• Italy FTSE MIB +0.9%

The retreat in yields is taking some of the strain off equities for the moment, following the relentless climb in borrowing costs earlier in the week. Those increases have been a constant worry for European investors, particularly with persistent fiscal worries in France deepening anxiety over sovereign debt.

Ten-year Treasury yields have retreated to roughly 5.24% today after touching an overnight peak near 5.35%. At the same time, the yield on France's 10-year government bonds slipped to 4.83%, against a high of almost 4.97% reached yesterday.

For now, yesterday's late turnaround on Wall Street is also giving European market participants something to build on. US benchmarks still closed the session lower, but the manner in which buyers recouped part of the earlier decline is helping to set a more positive tone today. That brighter tone is visible in US futures as well, with S&P 500 futures showing a gain of 0.4% and Nasdaq futures ahead by 0.9%.

Even so, I am not about to get carried away by this rebound just yet.

Yes, yields may be softening for the moment. But wider worries over inflation, higher oil prices and the cost of government debt have not truly disappeared.

The drop in yields is giving stock buyers some space to move for the moment. The bigger test, though, is whether the recovery holds, with next week's US CPI report still to come.