European Equities Stung by Energy Prices and Middle East Conflict
European equities took a hit on Wednesday as investors grappled with surging energy prices and the threat of further Middle Eastern conflict.
The pan-European index dropped 0.4% due to broad-based selling in industrial manufacturing, consumer discretionary, and rate-sensitive growth sectors, offsetting gains across energy majors and defense listings in Frankfurt, Paris, and London.
Germany's DAX fell 0.4%, while France's CAC 40 was down 0.6% and London's FTSE slipped 0.2%. The price of Brent crude futures climbed 1.6% to $99.49 a barrel, just cents shy of the critical $100 threshold.
The surge in energy prices is raising fears of stagflation, which could prompt the European Central Bank (ECB) to hike interest rates further. The market has already priced in a 25-basis-point rate increase from President Christine Lagarde and the Governing Council on Thursday, taking the deposit facility rate to 2.50%.
The expectation of elevated borrowing costs is keeping core European sovereign bond yields near multi-year high watermarks, eroding the equity risk premium and tightening financial conditions across the euro area.