- Eurostoxx +0.4%
- Germany DAX -0.2%
- France CAC 40 flat
- UK FTSE +0.3%
- Spain IBEX +0.3%
- Italy FTSE MIB +0.6%
European equities are mostly starting the session on the front foot, although I would be careful about reading too much into the modest gains here. It feels like a case of déjà vu to the opening scenes yesterday, with regional stocks ending the day lower in the end.
The big problem for stocks is that the macro backdrop has arguably become even less comfortable overnight.
10-year Treasury yields briefly pushed above 5.27%, their highest since 2007, as markets continue to price in a higher-for-longer global rates environment. Meanwhile, oil prices are rebounding again with Brent crude above $106 as there is still no clear breakthrough in US-Iran negotiations.
The same combination of higher yields and higher energy prices is precisely what is troubling equities. That keeps the pressure on valuations while also reinforcing concerns that inflation may prove more persistent than central banks would like.
The RBA’s decision earlier to raise interest rates to 4.60% adds to that broader theme, with policymakers signaling that some upside inflation risks are now materialising.
Meanwhile, the lead from elsewhere isn’t particularly supportive either. US futures are mildly lower after the struggles on Wall Street yesterday, with S&P 500 futures down by 0.1%.
As such, the early gains look more like some bit-part resilience than any risk-on nod. If Treasury yields continue to push higher and oil stays above $100, European stocks will have to keep fighting against an increasingly difficult valuation and inflation backdrop in the big picture.
This article was written by Justin Low at investinglive.com.