European Stocks Plummet on Rising Bond Yields and Interest Rate Concerns

European stocks kicked off September on a gloomy note as government bond yields rose to new highs. The pan-European STOXX 600 slipped 0.2% to a more than one-week low, while Britain's FTSE 100 fell 0.5%. Germany's DAX and France's CAC 40 also declined, with the former slipping 0.5% and the latter gaining 0.2%. The surge in energy prices, coupled with hawkish remarks from Federal Reserve Chair Kevin Warsh, has prompted investors to price in interest rate hikes from major central banks.

The European Central Bank is expected to hike rates by 25 basis points as early as next week, according to LSEG data. ING analysts noted that this would be an 'insurance' hike, but further tightening would imply a more aggressive policy stance. Euro zone inflation figures for August are due later in the day, which could provide fresh clues on the interest rate trajectory.

Despite signs of a resilient euro zone economy and strong earnings, energy stocks rose 1.4% as Brent crude traded around $92 a barrel. Reckitt Benckiser Group added 4.2% after a favorable court ruling, while Air Liquide climbed 2.9% following media reports of activist investor Elliott Investment Management's stake in the company.