Overnight, the U.S. 10-year Treasury yield hit 3% for the first time since December 2018 ahead of a Federal Reserve meeting on Wednesday, where policymakers are expected to hike the rate by 50 basis points to contain soaring prices. European stocks are coming off a rough April, when worries about aggressive monetary policy tightening, China’s COVID lockdown, and the Ukraine conflict stoked concerns about a sharp global economic slowdown.
On Tuesday, European markets rallied following a spate of positive earnings reports, while banking stocks rose as government bond yields rose to new highs in anticipation of faster interest rate hikes by global central banks to combat rising inflation. The pan-European STOXX 600 index rose 0.6 percent, bouncing back from a “flash crash” sparked by a single sell order trade by Citigroup Inc. the previous session. Banks, oil and gas companies, and automakers all gained roughly 2% on Tuesday morning, as German 10-year bond yields exceeded 1% for the first time since June 2015.
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“The narrative so far this year has very much been inflation and interest rate driven. What the markets are trying to assess now is a slowdown in global growth and what impact that has on monetary policy going forward,” said Dan Boardman-Weston, chief executive officer at BRI Wealth Management. “What you’re seeing at the moment is a tussle in markets as to which forces are going to win – is it going to be inflation or recession or stagflation which is the worst of both worlds.”
French bank BNP Paribas jumped 3.4% as it posted a better-than-expected 19% rise in net income as trading boomed and reaffirmed its medium-term profitability targets. German logistics company Deutsche Post rose 0.7% after it reported higher first-quarter revenue and operating profit and confirmed its financial targets for 2022-2024.
Norwegian aluminum maker Norsk Hydro dropped 4.7% as it reported record quarterly profits that beat expectations but also warned of rising costs ahead due to inflation and logistics disruptions. Nearly half of the STOXX 600 companies have reported first-quarter results so far, and 71% of those have topped analysts’ earnings estimates, as per Refinitiv IBES data, with the biggest beats coming from the energy and materials sectors.
BP rose 3.1% as a strong operational performance on the back of rocketing oil and gas prices helped the British energy firm step up share buybacks. German chemicals maker Covestro slid 6.7% after it warned COVID-19 lockdowns in China will significantly affect business in the second quarter.
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