(Bloomberg) — European stocks fell by the most since March as the latest rise in oil prices fanned inflation fears and worsened a global bond selloff.
The Stoxx 600 declined 1.5% on Friday as risk sentiment spluttered in the face of rising bond yields. Rate-sensitive sectors such as banks, utilities and real estate saw broad based weakness, while the pullback in metals from gold to copper led miners lower after a strong week. Energy stocks were the one bright spot, while healthcare and consumer staples outperformed as investors sought out defensive plays.
Brent crude rose above $109 a barrel after President Donald Trump told Fox News the US doesn’t need the Strait of Hormuz open. Markets were also disappointed that Trump’s summit with Chinese leader Xi Jinping failed to yield any commitment from Beijing toward ending the Iran war.
“With a background of bond markets looking unsettled, with the problem of inflation, with the Strait of Hormuz not having a solution out of that Summit, I think there will definitely be some volatility to come,” Paul Skinner, investment director at Wellington Management, told Bloomberg TV.
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European stocks have underperformed US and Asian shares since the start of the Iran war, given the region is seen more exposed to the impact of higher energy prices on inflation and economic growth. Money markets are pricing about three interest rate hikes this year from the European Central Bank and Bank of England.
ECB Governing Council member Yannis Stournaras warned borrowing costs may rise if oil prices stay at current levels, while Huw Pill, the Bank of England’s chief economist, said late Thursday that a rate hike may be needed in the UK to combat inflation.
Among individual stocks, Salvatore Ferragamo SpA fell 18% low after reporting disappointing first-quarter sales. LVMH Moët Hennessy Louis Vuitton dropped after announcing plans to sell the Marc Jacobs label to WHP Global.
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–With assistance from Levin Stamm.
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