European Shares Plunge on Inflation Fears and Rising Bond Yields
European shares closed lower on Wednesday, pressured by rising bond yields and concerns over energy-driven inflation. The pan-European Stoxx 600 fell 0.2% to 645.94 points, after hitting one-month lows earlier in the session.
Retailers led a majority of sectors lower with a 2.3% drop, while Brent crude prices traded above $95 a barrel, adding to inflation worries. The escalating conflict between the US and Iran has stoked concerns about energy imports, particularly for Europe.
Despite strong earnings during the latest reporting season, which provided some relief to investors, elevated government debt in regional economies such as France, Italy, and Britain has been in focus. Higher interest rates could add to fiscal burdens, with Germany's 10-year bond yield hitting its highest level since April 2011.
The European Central Bank is expected to increase interest rates by 25 basis points next week, with a nearly half-percentage-point rate hike anticipated by year-end, according to LSEG-compiled data. Banking stocks helped limit losses on the Stoxx index, jumping 0.6% as lenders are seen as broadly positive for higher rates.
Volkswagen shares dropped 3.2% after Nokia Oyj would rejoin the Euro Stoxx 50, replacing the automaker, according to index provider Stoxx.