European Shares Plunge Amid Bond Rout and Energy Concerns
European shares fell to a one-month low on Wednesday due to a global bond rout and concerns about energy-induced inflation. The pan-European STOXX 600 index declined by 0.3% to 645.42 points, with retailers leading the way lower at 1.5%. Brent crude prices rose above $95 a barrel, adding to worries about inflation.
The conflict between the US and Iran has been escalating in recent weeks, with both countries trading fresh strikes overnight. Europe is particularly vulnerable to this conflict due to its reliance on energy imports. However, strong earnings from companies during the latest reporting season provided some relief to investors and cushioned the losses.
Mark Haefele, chief investment officer at UBS Global Wealth Management, remains optimistic about Eurozone equities despite the current challenges. He notes that improving activity, stronger earnings, and reasonable valuations support further gains. However, elevated government debt in regional economies such as France, Italy, and Britain has been a focus, with higher interest rates potentially adding to fiscal burdens.
The yield on German 10-year bonds hit its highest since April 2011, while investors see a 35% chance that the European Central Bank's deposit rate could reach 3% by March 2027. Banking stocks helped limit losses on the STOXX index, with Deutsche Bank AG rising 2.2% after Goldman Sachs upgraded its shares to 'buy'.