European shares little changed amid threats of rising yields and tariffs

FRANKFURT: European shares wrapped up Tuesday little changed as the pressure from rising yields continued to weigh on regional equities, while looming threat of tariffs from US President-elect Donald Trump kept investors on edge.

The pan-European STOXX 600 remained steady, closing at 508.31 points after experiencing a 1.4% dip over the previous two sessions. The yield on Germany’s 10-year bund climbed to 2.62%, marking its highest point since July 2024, while Italy’s 10-year yield was at 3.819%. Bund yields rose for a 10th consecutive session, their longest since an 11-day streak in early 2022, which in turn was the longest since at least 2015, according to LSEG data.

The healthcare sector was the heaviest drag on the benchmark index, slipping by 1.6%. The energy sector also felt the heat, dropping nearly 1% as BP saw its shares fall 2.5% following an announcement that lower refining margins would dent its fourth-quarter profit by $100 million to $300 million.

Providing a cushion to these losses was the automobile sector, which revved up by nearly 1%. A Bloomberg report suggested that Trump’s economic team is contemplating a gradual increase in tariffs, which buoyed the tariff-sensitive sector.

Euro zone banks rose by 1.7%. Analysts predict the European equity market may remain in a holding pattern until Trump officially assumes the presidency on Jan. 20. Globally, markets have been jittery about the potential for fewer interest rate cuts by the Federal Reserve this year, following robust US jobs data and the possibility that Trump’s tariffs could stoke inflation. Despite a producer inflation report in the US, coming in softer than expected, European equities and Wall Street failed to hold gains and reversed course into negative territory.

December’s PPI numbers “seem encouraging, but they mask some price jumps in a few of the key components which feed directly into the Fed’s preferred core PCE inflation gauge,” said Thomas Ryan, North America Economist at Capital Economics. Investors are also anticipating a wave of new economic data for the euro zone, scheduled for release on Wednesday.

French Prime Minister Francois Bayrou opened the door to renegotiating a 2023 pension reform, in a bid to win over left-wing lawmakers his minority government needs to pass the 2025 budget. France’s benchmark index CAC 40 rose 0.2%. On the corporate front, JD Sports Fashion tumbled 6.3% after the British sportswear retailer downgraded its profit forecast and warned it was “cautious” in the coming year.