European stocks and bonds drop as traders weigh impact of Ukraine war
European stocks and government bonds sold off on Tuesday, after Russia launched a new offensive in Ukraine and ahead of a widely anticipated speech by the Federal Reserve chair this week.
The regional Stoxx Europe 600 share index fell 1.4 per cent, while London’s FTSE 100 lost 0.6 per cent and Germany’s Xetra Dax dropped 1.1 per cent.
Volodymyr Zelensky, Ukraine’s president, said on Monday, when major European markets were closed for the Easter holiday, that Russia had concentrated a “significant part” of its forces in the country’s eastern Donbas border region.
The World Bank also lowered its global economic growth forecast from 4.1 per cent to 3.2 per cent and predicted a contraction in Europe, a region vulnerable to inflationary pressures stoked by sanctions against Russia and supply-chain disruptions.
“Europe is in more of a precarious situation than the US,” given the region’s reliance on Russian oil and gas “and we see impacts on sentiment and economic activity that aren’t going to go away,” said Mary Nicola, multi-asset portfolio manager at PineBridge.
“But we are cautious on global equities overall,” she added. “The environment ahead is going to be increasingly challenging for most companies, with cost pressures mounting.”
Meanwhile, in government debt markets, the yield on the 10-year German Bund jumped 0.09 percentage points to 0.93 per cent — its highest level since July 2015. The equivalent UK gilt yield added 0.1 percentage point to 1.99 per cent. Bond yields rise as their prices fall.
Those moves came as longer-dated US Treasuries also came under pressure, with the yield on the 10-year note ticking up 0.03 percentage points to 2.89 per cent — remaining around its highest point since late 2018.
A speech on Thursday by Fed chair Jay Powell may offer signs about how aggressively the US central bank will raise interest rates this year, after the annual pace of consumer price growth hit 8.5 per cent in March. A handful of other Fed officials are also due to speak in the coming days.
The Fed has already committed to reducing the size of its $9tn balance sheet, swollen by a pandemic-era bond-buying programme.
Investors on Tuesday were looking ahead to a week of corporate earnings for clues about how the business world is grappling with inflation and the uncertain growth outlook. Streaming group Netflix will post quarterly numbers on Tuesday, with analysts watching to see whether a trend that led to UK households cancelling subscriptions to deal with rising living costs will be replicated elsewhere.
Chinese tech stocks had fallen earlier in the day, as markets reopened following the news that Beijing had tightened regulations on the country’s live streaming industry.
Hong Kong’s Hang Seng share index fell 2.3 per cent as the new rules compounded broader worries about global growth.
The Hang Seng Tech index, which tracks Hong Kong-listed technology groups, closed 3.8 per cent lower. Video platform Bilibili was down almost 11 per cent at the end of the session.
On Friday, the National Radio and Television Administration of China banned the streaming of unauthorised games on public livestreams. The move came just days after regulators approved video games for the first time in months, which analysts interpreted as a sign the crackdown against the sector was easing.
The price of gold, which reached its highest point in a month on Monday as economic growth concerns drove investors to buy up the haven asset, was steady at $1,978 a troy ounce.
Brent crude oil dropped 1.4 per cent to $111.56 a barrel, after rallying in recent days.
