European markets showed resilience on Tuesday, with the pan-European Stoxx 600 index climbing 0.5% by mid-morning. This rebound signals a shift in sentiment across the region, despite ongoing concerns about elevated bond yields. Investors are carefully monitoring borrowing costs in core European economies as yields on government debt remain stubbornly high.
While most sectors traded in positive territory, oil and gas stocks faced notable pressure. BP reported that its fourth-quarter profits could take a $300 million hit due to weakening refinery margins, pulling the sector down 0.7%. Retail stocks also struggled, with JD Sports plunging to the bottom of the Stoxx 600 after revising its profit guidance downward, further weighing on the market’s performance.
Bond yields remain a focal point for traders as short- and long-dated debt yields in the eurozone, the UK, and the US hover near multi-month highs. This week’s inflation data from the US is likely to add further clarity to the Federal Reserve’s path on interest rates. Overnight, Asia-Pacific markets and US stock futures gained momentum ahead of the release of the US producer price index (PPI). Economists predict a 0.4% rise in headline PPI and a 0.3% increase in the core figure, excluding food and energy. These figures precede the closely watched consumer price index (CPI) report, which could influence the Federal Reserve’s next policy moves.
European markets are navigating a complex mix of global economic factors, with inflation and borrowing costs front and centre for investors.
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