European markets open lower as rally pauses

European stock markets opened with slight losses on Friday as the recent rally took a breather. Investors are turning more cautious after a subdued session on Wall Street overnight.

The pullback is modest and follows strong gains earlier in the week, so a small retreat was not unexpected. Here is how the main indices looked at the open:

• Eurostoxx -0.2%
• Germany DAX -0.3%
• France CAC 40 -0.1%
• UK FTSE -0.1%
• Spain IBEX flat
• Italy FTSE MIB -0.1%

US futures are not helping the market mood either, with S&P 500 futures down 0.1% and Nasdaq futures falling 0.2%.

The bond market is a bigger concern for equities right now. Treasury yields have moved higher again this week, with 10-year yields climbing to 5.12% as traders reassess the likelihood of a more hawkish Federal Reserve. That backdrop makes it hard to chase stocks near record highs.

Europe is not immune to that pressure. If the tech selloff deepens and hurts broader market sentiment, that could also impact European stocks. And with the DAX approaching record territory this week, some profit-taking would not be surprising.

Later in the day, attention turns to the US producer price inflation data. That could provide another signal about whether the bond market has more room to push yields higher as the week ends.

For now, this looks more like a pause than a full reversal, at least in Europe. But bulls may find it hard to keep the rally going if bond yields remain elevated. That is worth watching before the weekend and into next week.