Hawkish Fed, Russia sanctions, bond yields in focus

LONDON – European markets closed slightly lower on Thursday as volatility continued following details of the US Federal Reserve’s monetary tightening plans and the ongoing war in Ukraine.

The pan-European Stoxx 600 provisionally ended down 0.25% as US Treasury yields slipped from multi-year highs after four days of inclines. Oil and gas stocks shed 1.9% to lead losses, while healthcare stocks rose 1.4%

The European blue chip index closed down by around 1.6% on Wednesday as hawkish comments from two Fed policymakers heightened expectations that the central bank would embark on a more aggressive tightening process.

Wall Street then sold off for the second consecutive day on Wednesday as Fed meeting minutes showed that officials planned to reduce their trillions in bond holdings by a consensus amount of around $ 95 billion. Meanwhile, policymakers indicated that one or more 50-basis-point interest rate hikes could be warranted to battle surging inflation.

US stocks were seen lower for the third consecutive session on Thursday, while shares in Asia-Pacific also fell, with Japan’s Nikkei 225 shedding 1.69% to lead losses.

“Sentiment is providing less of a cushion now than it was a couple of weeks ago, but still the balance of probabilities just tilts fractionally up for us with stocks.”

Will Hobbs

CIO, Barclays Wealth

Investors worldwide are also keeping an eye on the fallout from China’s tight Covid-19 controls as it battles another surge in cases, potentially further disrupting global supply chains. They’re also awaiting details of a new round of Western sanctions against Russia after evidence emerged of potential war crimes in Ukraine.

NATO foreign ministers gathered in Brussels on Wednesday for a two-day meeting to address Russia’s invasion of Ukraine and the international body’s response.

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Will Hobbs, chief investment officer at Barclays Wealth, told CNBC on Thursday that investors should avoid “rubbernecking the potential economic accidents in the road ahead” and instead look at the overall spectrum of probabilities.

“Sentiment is providing less of a cushion now than it was a couple of weeks ago, but still the balance of probabilities just tilts fractionally up for us with stocks,” Hobbs said.

“The point for us is that the world economy has considerable momentum going into this next tricky patch and that is probably not to be discounted for stocks.”

In corporate news, Shell has announced that it will write off between $ 4 and $ 5 billion in the value of its assets after pulling out of Russia following the country’s unprecedented invasion of Ukraine.

Credit Suisse republished historical financial results on Thursday morning to reflect its new divisional reporting structure that was announced in November.

In terms of individual share price movement in Europe, Swedish carmaker Volvo fell 8.5% after JPMorgan cut its target price.

At the top of the index, Italian road and airport operator Atlantia surged nearly 7% after Global Infrastructure Partners and Brookfield Infrastructure announced that they had pitched a possible takeover bid for the company.

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