European shares drop as bond yields rise on price pressures
written by Bella Palmer
The pan-European STOXX 600 index reversed early gains to end almost 0.6% lower, pressured by a rise in bond yields across the euro zone
European shares dropped on Wednesday as government bond yields rose on concerns about persistent global price pressures ahead of a key U.S. inflation report, with investor focus also on French elections at the weekend.
The pan-European STOXX 600 index reversed early gains to end almost 0.6% lower, pressured by a rise in bond yields across the euro zone.
The yield on the benchmark German 10-year Bund was at 2.452%.
Reports showing a rise in inflation in Australia and Canada have added to market jitters that interest rates will stay higher for longer than expected.
The bond market is causing risk sentiment to fade as inflation concerns rise once more, according to Kathleen Brooks, research director at XTB.
She said: Australia now has the highest rate of inflation in the developed world and the markets are concerned that this is a sign that inflation could increase once more and derail interest rate cut hopes.
Rate-sensitive real estate share gauge was among the top drags on the benchmark index, down 1.2%, while travel and leisure stocks led sectoral declines with a 1.7% drop.
Auto stocks shed 1.3%, with Europe's biggest carmaker Volkswagen sliding 1.6% after the company said it would invest up to $5 billion as part of a joint venture with EV maker Rivian.
Focus remained on a U.S. PCE figure due on Friday, which could play a vital role in gauging the Fed's interest rate outlook.
Recent comments from Fed members indicate they want to wait and see a more consistent sustained trend in low inflation, Daniel Morris, chief market strategist at BNP Paribas Asset Management said. He added that one month's data would not imply much and the Federal Reserve may want to be past the U.S. election before taking any decisions.
Inflation data from France, Spain and Italy are also due this week. Also on tap is the first round of France's snap parliamentary election on June 30. France's benchmark CAC 40 closed 0.7% lower.
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