FRANKFURT: European shares edged down to nearly a three-week low on Wednesday, as firmer oil prices and concerns over rising inflation offset relief from easing bond yields after the US Treasury announced more liquidity support for longer-dated debt.
Euro zone bond yields slipped after the US Treasury said it would double the size of liquidity support for long-term debt. Global bond yields had reached multi-year highs on Tuesday, unsettling investors and leading to a sell-off in risk assets.
Germany’s 30-year benchmark yield eased at least 1 basis point, while the 10-year bond yield was little changed. Long-end sovereign yields act as an anchor for the price of nearly every other asset in financial markets, including mortgage rates.
The move did little to improve risk sentiment, with inflationary pressures very much present for the energy-dependent Europe and dimming the prospects for its economic outlook.
“With oil above USD90 a barrel, the inflationary concerns are lingering, the fiscal concerns regarding ballooning US debt is still there,” said Fiona Cincotta, senior market analyst at City Index.
Shipping slowed through the Strait of Hormuz - a crucial route for global energy supplies, data showed on Wednesday, as the US and Iran made competing claims over whether the waterway was open.
The pan-European STOXX 600 closed 0.11 percent lower at 651.16 points.
The aerospace and defence sector led losses with a 1.6 percent drop, while European banks slipped 1.5 percent.
“There are several headwinds that banks are facing… the latest developments surrounding the yields, concerns over the economic outlook for the European economy and what that might mean for households and businesses as far as increased chances of a rate hike from the ECB,” added Cincotta.
Traders in money markets are pricing in a 50-basis-point rate hike from the European Central Bank this year, according to LSEG data.
Limiting declines, basic resources shares gained 3.3 percent, tracking precious metal prices, while healthcare shares also rose 1.4 percent.
While companies on the STOXX 600 benchmark are now expected to report earnings growth of 24.1 percent, up from last week’s 23.4 percent estimate, according to LSEG I/B/E/S data, attention turns back to energy prices.
Euro zone consumer price inflation rose to 0.2 percent in July, in line with expectations.
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