European stocks drop amid inflation worries

The pan-European STOXX 600 index shed 0.2%, with automakers sliding the most, while commodity-linked stocks stood out with big gains

European stocks fell on Wednesday as surging commodity prices stoked inflation worries at a time when sanctions against Russia over its invasion of Ukraine have had a spillover effect, denting risk appetite.

The pan-European STOXX 600 index shed 0.2%, with automakers sliding the most, while commodity-linked stocks stood out with big gains.

The oil & gas index climbed 3.4% on the back of a near-7% surge in oil prices, with Brent crude soaring past $110 per barrel for the first time since 2014.

Miners gained 2.5% as prices of metals including nickel and aluminium rose, supported by increasing fears of supply disruptions.

Overall, global stock markets came under pressure as investors worried about the impact of growing reprisals against Moscow, with U.S. oil major Exxon Mobil following its European peers in exiting Russia operations.

For Europe, the downside risks exceed upside at this point because the conflict is still raging on. Sentiment is still going to remain down in the dumps, said Craig Erlam, senior analyst at Oanda.

There is somewhat of a stagflationary impulse here, said Jonathan Stubbs, equity strategist at Berenberg.

It’s too soon to say whether this is a cycle buster, we don’t think it is but it could be weeks or months where we have this uncertainty and it makes it very hard for investors to have a high level of conviction, Stubbs said.

Euro zone banks dropped 1.0% after hitting a 10-month low earlier on concerns about the sector’s exposure to Russia and clouded outlook for interest rates.

Among individual stocks, Ericsson slumped 12.5% after the Swedish telecom gear maker said it had been informed that disclosures it made to the U.S. Department of Justice about an internal investigation into conduct in Iraq were insufficient.