European stocks are opening modestly higher to start the new week, although I would argue that there isn’t much conviction behind the early gains.
- Eurostoxx +0.1%
- Germany DAX +0.2%
- France CAC 40 +0.4%
- UK FTSE +0.3%
- Spain IBEX +0.1%
- Italy FTSE MIB flat
If anything, the more interesting takeaway is that European equities are managing to stay in positive territory at all. That is considering the broader market backdrop that investors are currently facing up against.
Oil prices are pushing higher again after Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz, although negotiations are expected to continue this week. WTI crude oil is trading up by nearly 2% to $94.30, putting renewed focus on inflation risks amid elevated energy prices.
At the same time, the bond market isn’t offering much of any relief. 10-year Treasury yields are nudging back up to 5.20%, as markets continue to debate on further Fed tightening as US economic data remains resilient.
So once again, it is that very same combination of higher oil prices and higher yields that presents the threat to the slightly better opening mood we’re seeing.
The lead from US futures is also not too encouraging with S&P 500 futures down 0.4% and Nasdaq futures down 0.9% on the day.
As such, I wouldn’t ascribe the early gains in Europe to be encouraging or a signal for any risk-on tilt. As long as oil prices stay elevated and Treasury yields threaten another leg higher, then the upside for stocks could remain difficult to extend.
This article was written by Justin Low at investinglive.com.