European stocks fall as traders assess Russia-Ukraine talks and inflation outlook

European stocks fell, after a rally in the previous session driven by peace talks between Ukraine and Russia, while a sell-off in government bonds moderated at the end of the worst month for US Treasuries since 2003.

The regional Stoxx 600 index, which closed Tuesday at its highest level since Feb. 17 after Moscow announced it would scale back military operations near the Ukrainian capital, Kyiv, lost 0.5%. London’s FTSE 100 gained 0.1% and Germany’s Xetra Dax fell 1%.

Yields on shorter-dated Treasuries, which move inversely to debt prices and have risen this year as traders anticipate aggressive interest rate hikes, also fell. On Tuesday, the yield on the two-year Treasury briefly exceeded that of the benchmark US 10-year note, a rare event that has historically preceded recessions.

Global stocks recovered from a panic attack in early March sparked by Russian President Vladimir Putin’s invasion of Ukraine, with the FTSE All World Index trading at its highest level since March. February 11th. downside bond market and vulnerable to corporate earnings hit by high inflation.

“Bond selling is the main source of buying equities, but earnings will also matter soon again,” Emmanuel Cau, head of Barclays’ European equity strategy, said in a note to clients.

In Europe, “sovereign and corporate balance sheets are in poor health,” said Sean Darby, global equity strategist at Jefferies.

But, he added, investors should “always be mindful of short-term” earnings shocks and “position themselves for a much higher rate of inflation than Europe has seen in the past.” over the last decade”. Consumer price inflation hit a record 5.8% in February compared to the same month last year, when it hit 7.9% in the United States.

In debt markets on Wednesday, the yield on the two-year Treasury fell 0.02 percentage points to 2.33%, close to its highest since May 2019. The benchmark 10-year yield fell was just above the two-year yield, at 2.38%.

The Bloomberg US Treasury Aggregate Index fell 3.5% in March, its worst month of losses since July 2003.

In Asia, Hong Kong’s Hang Seng stock index rose 1.9%, mirroring Wall Street’s gains on Wednesday. Japan’s Nikkei 225 fell 0.8%. The yen rose 0.8% to 121.9 to the dollar, after hitting a seven-year low against the US currency on Monday.

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